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  CSPAN    U.S. Senate    News/Business.  

    October 30, 2012
    12:00 - 5:00pm EDT  

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make seven specific findings to support the resolution. he has defined the company is in default of the danger of default. also the recommendations have to indicate a failure of the company and the resolution of the bankruptcy code would have serious adverse consequences for the financial stability of the united states. i'm not going to go through all but if you look of the statute is in section 203 of dodd-frank but also the company has to meet the definition of the financial company under the statute. so, once that determination is made the company can consent on the point of receiver they are given notice and if they don't consent, then there is a process. here in d.c. the u.s. district
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court in d.c. for the judicial review they have 24 hours the case is under seal, the court has 24 hours after receiving the petition. if the court doesn't act within that 24 hours, the appointment is effective as an adderall. the decision to allow the appointment is not subject to stay if it goes up on appeal. once appointed they have broad authority similar to that we have in the financial and institutions under the fbi act and sola to the superpower over the last 75 plus years to resolve the financial institutions in a way that doesn't this route the competence and the financial system to resolve the power was include the ability to create a bridge bank, the ability to save litigation and the company. we have the ability to create and we have a claims process.
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the statute imposes losses first on shareholders than to the unsecured creditors we can repudiate contracts and enforce contracts that would otherwise be terminated as a result of the appointment. the statute also provides for liquidity and an orderly liquidation fund that allows the operation of the tunnel could delete the financial company and its affiliates. the liquidation fund is established within the treasury department at the time the b.c. version is formed. the statute prohibits any taxpayer loss from arising from the resolution of the institution under title to and can be barred from the orderly liquidation found the but they have to be repaid in full from the asset to the failed institution, second from the callbacks and people that were responsible and fair if
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necessary an assessment on the industry. the fdic has made it a priority to promulgate the rules to implement this provision. a primary regulation is a comprehensive way of dealing with the orderly resolution of authority and that is codified at its the final roll back in january of 2011 and final rule in july of 2011 and that provides for the creditors ability to continue operations by paying for certain services provided by employees and others and the recruitment of compensation paid from certain executives and the of the needed tools. we issued a final rule concerning the max imam obligation limitation and this
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is the limit of the aggregate amount of outstanding obligations we can issue an print connection with the receivership in title to through the use of the orderly liquidation fund. just this month, we adopted a final rule involving and was that of contracts with subsidiaries by the fdic receiver. basically just provides from the contract provide better insolvency and they terminate this to continue those contracts on the statute to maintain services and maintain the value and the institutions. this is love and that is called the single point of entry resolution because it will allow us to continue the operations of the subsidiary level. now we've also created a systemic risk advisory committee
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that steve up with 19 members prominent individuals, former fed chairman, vice chairman, and a bunch of other folks. they meet periodically and provide discussions on a broad range of issues regarding our resolution authority for the companies under title to -- we've also held a round tables and this continues to revolve. let me talk a little bit about one possible resolution strategy that we've been talking about recently under title to the we have identified as the single point of entry method. and we view this as a preferred approach under title to if there is no financial company in the position to acquire the failed institution or where an acquisition could cause an increased concentration of risk.
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that is one of the issues in the past where we have had large institutions when we do an assumption of the zach larger institution which dodd-frank tries to avoid under section 622. this is outlined in great detail the reserve bank of chicago i would recommend you take a look at that if you are interested in getting in the details but we would be the point of receiver of the holding company of the financial group following the company's failure and going through this appointment process. immediately following the appointment, and being placed in receivership the financial company would be formed with certain assets of the institutions and those that
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would be transferred. the bridge company will continue to perform to the subsidiaries and minimize the disruptions in quoting the risk of the spillover effect on the counterparties both domestic and abroad continue to maintain their operations and remain open the fdic order liquidation fund and a can provide liquidity for the company's operations including the operations of the solvent subsidiaries. following the completion of the process the bridge company could emerge as a new financial company and to complete the government at divestiture the idea would be that the enterprise could be recapitalized by creditors and the financial company receiving
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a combination of cash, equity or debt in satisfaction of the claims against the receivership. the strategy has the advantage of returning the company to private ownership and insurers as possible avoiding an even bigger too big to fail company. it also would likely promote the stability in the financial markets of the mandates. a few words about international cooperation because that's certainly been a big issue in connection with how we going to do this? there is a lot of work done. certainly in the recent financial crisis that has been increased awareness on the degree to which these large financial companies operate across the borders. and so, obviously the resolution has to be coordinated internationally to reduce the risk of disruption. so, there is no current international insolvency framework to resolve a global the systemically important financial institution in a
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comprehensive manner so we really need to do advanced planning and coordination between our counterparts in other countries and ourselves to determine how they operate and reduce the risk to the global financial markets showed that failure occur so we've made significant efforts to identify and begin to overcome these cross border impediments to effectively resolve these gsifis. this might mitigate the number of cross border obstacles' the weatherize complicate resolution because they would continue to remain open and operate the fdic and federal reserve and other u.s. authorities have the crisis management groups and under the auspices of the financial stability for each of the u.s. based gsifis and we are in the
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crisis management group's intended to enhance institution specific planning for the future resolution and we are engaged in ongoing media dialogues with those entities so we are working on a bilateral basis with the foreign supervisors as well with foreign operations in the key u.s. firms. it's interesting because the u.s. gsifis tend to be in a small number of key jurisdictions particularly the united kingdom and our initial work with the foreign authorities has been very encouraging. we've made substantial progress with our counterparts and understand how possible u.s. resolution would work and what would be treated under the existing law and involved in the in that examinations of the impediments to affect the
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resolution and we are working on a cooperative basis to overcome those. so in conclusion, dodd-frank is certainly given the significant new responsibilities to address these risks associated in the recent financial crisis. you take these responsibilities seriously and we are ready to use these authorities when they are needed. hopefully not. but while the key provisions are now in place, we are continuing to implement the remaining provisions in rulemaking and we continue to refine our thinking on the process we increase transparency in the rest of the market's on these powerful new tools and how they can best be used to maintain financial stability and end to big to fail. i look forward to participating in the q&a. thank you very much.
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[applause] >> now for the downside. first i want to thank you professor bachmann for organizing this. it's an excellent panel i must say and i've always enjoyed being on the panel with space and rick. laughter come i want to take on everything that was said, so let me get started. title i of dodd-frank. right now it designates the statue designates 36 bank holding companies as liable to
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create the instability in the u.s. economy if they fail. in addition, it goes on to permit the financial stability oversight council. it designates an unknown number of additional nonbank institutions that could create instability in the u.s. economy. now what does it mean when congress gives this authority or designates this notion in the statute? what it says is these institutions are too big to fail. so not only are we worried about the too big to fail but we have made the problem worse by actually embedded in the statute for these banking institutions and promoting the fsoc to designate certain institutions and we understand just from reading the newspapers that they
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have for the large insurance companies and in one case a finance company to be designated as too big to fail. what does it mean? what effect does that have? on the creditors will get these institutions and much safer investments than others. first of all once they are so designated they are supposed to be regulated stringently by the fed to really don't know what stringently means because of but of a regulation that suggests a number of things that would be the constituents of stringently but we haven't seen it in action. in any event, creditors would be delighted by this because of course whenever it means, it means they will be taking less risk than others that are not regulated stringently and creditors get no value from the
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risk-taking. shareholders like risk-taking, managers like risk-taking, a crowd of hers don't like risk-taking and don't benefit from that so they will be happy to provide funds to these institutions at lower rates than they provide to their competitors. there is a real danger that these additional advantages, these funding advantages will make these institutions competitors to the others. now from time to time we hear people say every one is objecting to the idea that they might be designated as a sifi and treated that way so that must mean it's not going to provide a benefit but in fact it does provide a benefit. ..
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of course they all want to avoid that the possibility. the danger that i see is that this creates too-big-to-fail in a way that is, was ambiguous at one time in the past, but is now as i said, embedded in the statute. okay. title 2. another similar problem. as rick outlined the secretary of the treasury can seize any company. that these are not
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necessarily sifis. the secretary of the treasury can seize any company that is a financial company and following the process that he talked about one day for a court to review. the likelihood a court will actually turn down the secretary of the treasury after having consulted with the president is highly unlikely. so these institutions will be turned over immediately to the fdic. what happens then? the fdic as rick i think suggested, the fdic has all kind of authority to bail out the creditors of these institutions. there is a lot of language that suggests that they might not do it. in fact when you create a, bridge bank, and can borrow substantial amounts from the treasury, actually up to 100% of the value of the assets that you transfer to that bridge bank, you can then use those fund
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immediately to bail out the short-term creditors and the reason you would want to do that is to keep them from running. the way that you would prevent the kind of event that occurred after lehman brothers is to make sure that the short-term creditors at various institutions are not afraid that their institution might also be seized by the secretary of the treasury. so what you want to show immediately is that you will be taken care of. you don't have to run. and that would reduce the panic in the markets. that is something that the fdic is empowered to do. i suspect if we should ever have another financial crisis like the one we had, which i think actually is very unlikely, but assuming we did have such a financial crisis, that is a way we would make it less likely to affect the entire structure, create a panic, that creates
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the entire structure of the financial markets that we had before. now, i, looking at the way the act has developed so far i have to say it is wildly off the tracks and on its way to becoming a train wreck. before, let's look at this way. davis polk as many you probably know counted up all the regulations that have to be made by the various agencies under the act and what they found was there are about 240, 250 of these regulations. one-third of them have been finalized in the two, over two years since the act was passed the, one-third. one-third have been proposed but not finalized, and one-third haven't even been proposed. the, volcker rule is a great example of this. the now the volcker rule
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doesn't seem very hard to understand. it is, it says simply that banks can not engage in proprietary trading. now, okay, we understand what propry temporary trading is. it means the bang can not use its own assets to trade that was thought to be risky although no one ever suggested it had anything to do with the financial crisis but now banks can not engage in proprietary trading but they can engage in market-making and in hedging. well, how do you define the difference between market-making and hedging? between market-making and hedging on one side and proprietary trading on the other? i suggest it is very difficult to do that unless you're inside the head of the trader and understand what the rationale for the trade was which makes it extremely difficult to draft a regulation. that is one of the reasons
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why we have no final regulation, yet, on the volcker rule. similar, things have happened now in the housing field, because what congress did was specify, i won't go through all of them but they're trying to adjust and control and in some way the securitization process. so they created something called a qualified residential mortgage, and a qualified mortgage, and then told the regulatory agencies to tell everyone else what those terms mean. the regulatory agencies have not yet been able to do that. there was a regulation put out by the regulators about uqrm, which is the qualified residential mortgage. huge outcry not only in congress but also in the industry and the regulators withdrew behind their wall and we haven't heard another word since then when the next regulation on qrm will come out. qm is to be decided by the
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consumer financial protection bureau. qm is very important because what it does is it turns, in effect it turns around the question of who is responsible for a loan. the quality of the loan. it says if a loan is made to someone who can not afford it, it is the lender who is responsible, not the borrower. so it becomes very difficult for lenders to, to understand what their rights are in dealing with a borrower and most of the severe problem there is that the borrower under these circumstance, if he or she has borrowed funds that it turns out the borrower can not afford, then the borrower has a right to defend against foreclosure. so that, not only affects the immediate lender, it affects all of the buyers of
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this loan up the, up the transaction, the securitization process and makes it very difficult then for any of these loans to be sold unless you're absolutely sure these buyers could afford the loan they received. this will propose tremendous caution on regulators and on lenders throughout the process and that will slow down the growth of our mortgage market, another very important element. in the derivatives field a lot of regulations have already been put out by the cftc. in fact they're ahead of most of the other agencies but the regulations are now so costly and so troubling to the industry that they are turning around the whole swap market so instead of functioning under the swap rules that the agency has created, they are turning to the futures market and trying to turn swaps into
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futures so they don't have to comply with the swap rules. now, that says a lot about the kinds of regulations that the dodd-frank act has demanded of the regulatory agencies. and shows that in fact, this is going to be an unworkable statute. now what does it all mean in the end? what it means in the end, i think, is that we are going to have a lot of uncertainty in our financial system for a long time. i believe that the dodd-frank act is substantially responsible for the very slow recovery that we have had from the financial crisis since 2010. in the nine or ten months between the end of the recession in june of 2009 and the, and the final debates on the dodd-frank act the average growth in the economy was about 2 1/2% in the gdp. since dodd-frank was passed, the average growth is about
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2% in all the months since with each year being slower on that the year before and i think the reason for that is the uncertainties created by the dodd-frank act. so in my view we are, we have already stymied the growth of our economy and once these regulations start coming out in greater detail there will be lawsuits about them by just about over industry and company and those lawsuits will go on for years, with questions about the validity of the regulations and even whether, even whether the congress had the authority to grant those powers to a regulatory agency, all of that litigation will take many, many more years and it will continue to slow down the growth of the economy. so my view, if i had any anything to say about it, would be that we ought to,
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we ought to repeal dodd-frank as governor romney has suggested. we ought to repeal dodd-frank and reprays it with those things that are necessary. and i'm afraid that there is very little in this act that is necessary because the financial crisis also in my view was not caused by a lack of regulation. there was plenty of power in the bank regulators to regulate the economy, regulate the way the banks operated and the act actually doesn't give them much more power except to say you must now do this much more stringently. so from my perspective we ought to, we ought to repeal the act, replace it with those things that seem sensible. there should probably be a commission of some kind that takes over the actions of the consumer financial protection bureau but not
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the single administrator idea that was developed and insulating that person from other kinds of controls by the president or by congress. all those things could go back into a statute but at this point it's probably better for our economy and the growth of the economy to repeal the act. thank you. [applause] >> good morning. i too am here and happy to be here with scott and rick and jerry. no one else. [laughter] i too want to thank, you know, george washington law and art, others who have done this. it is a terrific program. it is good they do it every year. and i thank them for inviting me and i hope after my remarks i can get invited again. i'm in charge of better markets which is a nonprofit organization that promotes the public interest in the
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financial markets. you want to talk about a lonely job, join us. to insure i dei have so the compliment frequently sent my way as the manual street loves to hate, i thought i would take, make a few comments on some overarching issues often unspoken. a lot to say. not much time. i'm from boston, i talk fast. if you're thinking of sleeping at this time you want to leave now. very quickly, two quick things on what peter had to say. many my remarks will address them. to say i disagree undo the line would be an understatement. first it ignores the entire fact there was implicit guaranty prior to the crisis all the too-big-to-fail banks would be backed up by your wallets. that implicit guaranty became explicit during the crisis. when somebody says repeal dodd-frank and replace it, they're going to replace it again with your wallets. so think about that. and i'm going to address first, dodd-frank act is most often discussed without context. very little context today.
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that's like talking about the levees in new orleans today without every mentioning hurricane katrina. no one would do it. it is nonsensical. in fact there is usually so little context provided about dodd-frank that you would think that it was the product of a immaculate conception. there was no antecedent event that is amazing. that's why when opponents talk about growth rates, what was the date he started with? 2010. nothing happened before that. it is inexplicable, right? so of course, while not often mentioned the dodd-frank act was passed because of the 2008-2009 financial crisis which was the worst financial crisis since the great crash of 1929 and it delivered is the worst economy since the great depression of the '30s. how come it is so rarely mentioned? because the financial industry, its lawyers, lobbyists, allies and the broader influence industry that it has purchased has
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been wildly successful in changing the subject and the debate from the financial crisis, wall street's role in it, and the cost to the country. two, drum roll, the financial reform law, regulations implementing it and the cost to them, the industry. it is truly remarkable how much time is spent talking about the self-serving claims about costs to the industry to put financial reform in place to prevent that very industry from crashing the financial system again. almost never mentioned are the costs the industry inflicted on the american people, our economy and our government. better markets recently did a study showing that those costs are no less than $12.8 trillion. give the economic wreckage caused from one corner of this country to the other no one should be surprised by that number or that it is large and will almost certainly be larger when history gets back.
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there are a few copies of this report in the back. it is also available on our website, bettermarkets.com. some people object to blaming wall street for the financial crisis but it can not be fairly argued while many may have contributed to the financial crisis not all contributed equally and in any fair-minded hierarchy of guilt wall street belongs at the top. now let's be clear about what is going on here. the richest industry in the history of the world is using its economic power to buy bipartisan political power and using all the mechanisms of the bipartisan influence industry to bend public policy and law to its benefit regardless of consequences to others. how? first, fight to defeat the legislation and failing that, fill it full of loopholes and complexity. second, lay siege to the regulatory agencies overwhelming them with army of lawyers and mountains of paperwork to kill or get loopholes in the rules. you wonder why one-third, one-third, one-third applies in the half bogus marketing
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document from the famous law firm? that's why. if you want to know what they're really doing, read bloomberg article, bank lobly widens volcker rule inciting outrage that is what is really going on. third, political allies harass and attack regulatory agencies with demands and hearings while trying to defund them. sec schapiro testified 50 times in four years. how does she run a agency when constantly dragged up to the hill to be berated by the industry allies four, strategic sue to win when the courts what they couldn't get. peter is wrong the legal onslaught is coming. delay, delay, massive campaign contributions will purchase more political allies and roll back the reform law. let me mention one of the lethal weapons the industry is using to kill financial reform.
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cost benefit analysis. they want to applied to every agency regardless of legal requirements. what isn't side about this seductively sounding concept they're pushing industry cost only analysis where the cost to the industry of every rule has to be rigorously and exhaustively calculated considered and weighted. they cry about it. peter just talked about the cost of regulation, cost of regulation. think about the cost to the financial crisis on the country but think about this. it is not industry you should be worrying about. it is irrational. this prioritizes the cost of reregulating industry over benefits of protecting the public from that industry. frankly the legal challenges are nothing less than an attempt to obtain the judicial nullification of the dodd-frank law. two of three branches of government came together to respond to the biggest financial and economic crisis since the great depression. the third brand of government, the courts are in some cases effectively nullifying that law ostensibly based on cost benefit analysis. it is a long complex subject and you might have guessed
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we did a report on that. it's a long, extensive report. it is incredibly important. you should know about it. we've got copies here and available on our website at bettermarkets.com of the it is a good window to seeing exactly what this industry is doing here. with that as a little context let's talk about the dodd-frank law. did it go too far, not far enough? i have know, you don't know where i'm coming out. [laughter] first. as jerry alluded to in the beginning it is impossible to evaluate at this point premature. the law isn't even implemented yet the rules aren't half passed, never mind in place. calling to revisit a law that is not yet implemented is nonsensical. asking this question at this point in time is exactly what the multiyear industry attack is all about. their goal has been to change the focus from the collapse, their role, the cost to everyone else, to
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the law and the regulations and they have succeeded amazingly. the question that should be asked is why haven't the american people been protected yet more than four years after the financial industry almost caused a second great depression? second, it's not a perfect law. democracies don't produce perfect laws. this was the best law our democracy could produce at that point in time. and the face of overwhelming industry resistance. one study at the time showed that there were 2500 registered lobbyists lobbying during the dodd-frank act, almost 500 of whom were former office holders or staff from the hill. it is one of the most formidable armies ever as semibedded to -- assembled to battle our government. remember the lobbyists are the tip of the iceberg of influence industry that wall street has hired to
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battle financial reform. frankly it is remarkable there is any law at all. hard to see how anyone can make the case this law went too far. most importantly didn't break up the first too-big-to-fail at the center of causing crisis and required trillions of dollars to bail out which this country will be paying for for decades. there is only one industry in this country that threatens our financial system, our economy and our treasury. it is also the only industry that can destroy lives and livelihoods on a massive scale from coast to goes. -- coast. yet no fundamental restructuring was required to remove that threat. as a result the law has lots of provisions trying to cabin in the too-big-to-fail firms, all of which were necessitated by not breaking them up. you want simplicity, complexity, clarity? i got it for you. it would be a one page bill. we couldn't do it. so what did we do? we have all these other things making up on second
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or third best choices. the volcker rule is only necessary because of that and inies an international problem. there is vickers ring fencing in u.k. and e.u. report hybrid of both. ail these are second best regular atory approaches with cleanest and easiest way to deal with too-big-to-fail firms which didn't happen. too far? i don't think so. it certainly didn't go far removing compensation incentives that reward outrage just risk-taking. from 2007 to 2010, the year we want to start worrying about growth, wall street paid itself cumulativec bonuses of 93 billion, $900 million. hard to see how that gets described as going too far, too far in the bonuses. not very far in the law. it didn't even do much to many of the key organizations that enabled the too-big-to-fail crowd to develop, mass produce, sell, and stick into the entire
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financial system toxic securities. remember that is euphemism. they are worthless securities. that is why they're toxic. how did we end up with some hundreds of billions of dollars of worthless securities and why are we here today with not a single criminal conviction? that's a different story. but what did they do about those key organizations? think of the rating agencies. sec chairman schapiro spelled out their egregious conduct and a few things in the law but they were barely touched. too far? not far enough. i could go on, but i won't. let me address one of the key arguments of the law, of the law went too far crowd. the regulation of main street will, i'm sorry, regulation of wall street will kill main street, stifling growth and unemployment plo. oh, no, no. not our profits revenues, bonus, we don't talk about that. if you do that to us you will hurt yourself. you will hurt your growth.
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you will hurt your employment. the first response to that there is nothing in dodd-frank that could do us much damage to this country as the last financial crisis did, or, importantly, what the next financial crisis is going to do. there is utterly no comparison. second, let's look at history for a moment. the financial industry had the heaviest regulation in history for about 70 years after the great depression, and yet, our country prospered. we built the biggest, broadest, wealthiest middle class in the history of the world. american businesses across the board thrived and wall street profitably ruled the world. think about it. all during the heaviest regulation ever. what happened? deregulation and nonregulation brought us to the brink of the second great depression. in just seven years or so, that's what history shows, 70 years of prosperity with
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heavy regulation and historic collapse after seven or so years of virtually no regulation. one more thing. when you hear the industry whining as they won't stop doing about the costs to them of financial reform, first, remember the costs to the crisis to the american people which is virtually never mentioned. i will mention again the report available on our website, better space markets.com. but then realize there are really spiritually no, no new costs put on by, impoised by financial reform. the real issue who pays those costs and when? the, this is the choice. the industry pays them due to regulations designed to prevent crisis, failure and bailouts? or, society and taxpayers pay them, cleaning up the mess the industry created, creates after massive
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failures and bailouts. those are the real choices. this industry is being reregulated and the costs of deregulation are being shifted back to them from society. now i'm going to close with a slight plug. as i mentioned better markets is a nonprofit organization. it's a lonely job against great odds. you don't win popularity contests doing this you don't get invited to swanky partimsv or events. i don't want to exclude this as not being swanky, art [laughing] you also don't get rich. but you do get to work on interesting, consequential and indeed historic events. my plug. we're looking for people with a lot of experience. we don't do on-the-job training at better markets. if you have a lot of experience and you have a passion for public service, send me your resume'. we need the help. thank you very much. [applause]
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>> i'll just move over here so i can see the audience a little better. thank you so much for those fantastic presentations. i thought with our few minutes remaining we might take some questions. maybe i'll start with a question for all the panelists. we can take audience questions. then i would like to close with a minute or two with some predictions. so obviously a lot of different and interesting views but there is kind of one common theme, maybe and, maybe. there is a recent article quoting karen shaw, well-known banking analyst who had done an assessment of the regulatory landscape and said something to the effect of endless agencies will be a tangle of
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contradictary mandates impossible to enforce and to comply with. regulators need to go back to congress we want to do everything you said all at once but can't hear our priorities. i guess for all the panelists, along those lines some think dodd-frank is too far, some think it is far enough. not sure anybody said it was just right but the audience may have other views. what should be the priorities under the dodd-frank act, if you go on the theory it is a 2,000 page missive that is still so hard of a law or set of laws to implement, it is taking literally years for regulators to do that? so if i could just maybe start with scott and work the way down the line. what should be the priorities under dodd-frank in your view? >> so i think the way we've approached the priorities is as i mentioned earlier, to refocus our supervision beyond just safety and soundness to include
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financial stability as, both something we look at and think about in our daily supervision. so we've reorganized our supervisory approach. we've begun to focus on the key parts of regulation we think most important. capital is very important. risk management, and then, we've done the best we can to fill in the agenda beyond that that congress has set for us but i think the priority has been improvements in supervision and capital. >> okay. rick? >> obviously i would agree with scott's points but i think for us the interplay between title one and title two and ending too-big-to-fail through the heightened supervision to address the issues on the front end and the ability through title ii maybe sure we don't have a situation in the future where we bail out the large institutions and they feel like they have a government subsidy.
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>> peter? >> my view has always been that the financial crisis was caused by government housing policy, which was not really addressed at all in dodd-frank. obviously as you heard i'm for repealing dodd-frank because in my view it is illegitimate in the sense that it didn't address the causes of the financial crisis. it was a washington idea which was to give more power to washington and the regulatory agencies, all of which are always successful if they hadn't been deregulated in some way. but the, so my suggestion would be that we eliminate dodd-frank and we go back to look at government housing policy and why we got into a situation where we had so many weak and subprime mortgages in our financial system in 2008. >> dennis, maybe i give you option of answering my question or responding to peter's answers? [laughter] >> i'll do both, but
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shortly. one of the things we learned after the great depression there is no single bullet to protect the american people from an industry that tends to recklessness on investments in trading when not being watched. don't send a 5-year-old into a candy store and say, nobody in there. you can do what you want but i want you to pick one candy and come back out. won't happen. the incentives are so extreme on the upside and so small on the downside. so what we need are layers of protection. yes, there will be some redundancis. just in a building like this. it doesn't only have a fire exit sign. it has sprinklers. it has fire extinguishers. it has pull boxes and multiple layers of protection. that is what you need in the financial system. that is what dodd-frank tried to do. what we need is a sounder, safer financial system, less prone to crisis and failure, most importantly, that prevents or eliminates taxpayer bailouts. only one industry in this country gets its filthy
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hands in your pockets? it is that one. nobody else. everybody else fails. okay? that should be eliminated and dodd-frank does that all the way and does it in a complex way that is admitted. it has to be. it is a complex industry. from the fed on the front end and prudential standards and resolutions plans all the way to fdic at other end to orderly liquidation authority and light to the otc market and bringing transparency. there are a variety of things that need to be done and multiple things that need to be done because it is only that way the american people will be protected. one last thing, jerry. importantly on the study you quoted it was, they were hired by sieve ma. the number one, sifma. one of top five industry trade groups and one of the most powerful, one of the one as plaintiff suing the cftc today as we speak to throw out rules actually commissioned that study. when you out there read or hear about a study somebody
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saying should go back to congress and what do you really want us to do? first of all congress gave you a rough hint what they want you to do. dodd-frank act. secondly you better look who is really saying we should do something most of them are either directly or indirectly on the payroll of wall street do we have audience questions? if not i'm prepared to plunge on. maybe we can start to the left here. >> thanks very much for the debate. it is very interesting. so, peter echoed a lot of the comments governor romney made in the first debate about dodd-frank not ending too-big-to-fail. when glenn hubbard would asked what owe would do instead of too-big-to-fail at the nape conference last week, possibly alternative bankruptcy procedures or bailing. peter, would you agree those are possible alternatives to
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help end too big to fail? to richard, scott and dennis, do you think there are other more kind of stricter, more stringent criteria that would improve upon title ii? >> from my saint point of view i don't see that the current structure of title ii ends the essential problem and the essential problem is when all of the financial institutions are thought to be unstable or possibly even insolvent, the failure of one institution causes a panic. we have had panics very seldom in this country. one really, maybe 80 years, 100 years since the panic of 190p. these are very rare events. they occurred before because of what housing policies had done. so it doesn't matter whether we have a title ii or whether we use the bankruptcy system. the advantage of the bankruptcy system is that it does not create moral hazard. it does not give creditors
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the notion that they are going to be better treated with the failure of a large institution rather than a small one. so, yes, i think we can do things in our bankruptcy system that cure some of the problems that are endemic in financial institutions but we don't need a title ii in order to address those issues. >> peter accidentally just agreed with me on something. he said that there's panics are seldom in this country, they're very, very rare and he referred to the early 1900s. in fact financial panics in this country were quite common. they happened every 10 or 15 years or some until what? one of panics came to be after the great depression. after the great depression we put in place, massive regulations and multiple layers and different types of regulation, since then peter is exactly right we haven't had the panics. 70 years or so of relatively stable, not perfect, not without crisis but nothing compared to the great depression and nothing compared to the routine,
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regular panics that happened before them in history. ask yourself, so he's right they're very rare. you want them back every 10 or 15 years or so? get get rid of dodd-frank, unleash wall street and let's pretend they will self-regulate. better markets is nonpartisan. we criticize both can diets on financial reform among a few other things. bankruptcy we know alone will not work. we know for a fact it will not work. lehman brothers is the poster child. we're not taking position nobody should, that dodd-frank is perfect. dodd-frank is imperfect. no matter what you get is will being imperfect. go back there and get something it will being imperfect too. the question is do you get a law comprehensive enough two sufficient tools across the array of tools and markets in the shadow banking system and the regular banking system? do you have a array of tools that put you in the position to eliminate crisis, failures and bailouts? as scott alluded to earth
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early, the fed has been given the tools, fdic have been given tools. let the agencies get the tools in place, learn from them and work with them and fix things that could be fixed when people come together at the appropriate point in time. >> i will say, peter did raise his hand for a brief rebuttal to that. >> if i may. >> go for it. >> [inaudible]. >> that's right. my recollection of this idea of deregulation is a little bit different. i remember which came after the collapse of the s&l industry. and the f dcia, when it was passed congress and others said, ah, now we have a law that is so tough it will prevent any of these huge banking failures we had in the past such as the s&l crisis. i don't remember anything that is deregulatory. i'm sure if we had more time to debate it dennis would say, oh, well, the glass-steagall act. but when you think the glass-steagall act, if you
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know what the glass-steagall act actually did you would realize it was completely irrelevant to this crisis. >> okay. think we're pretty close to the end of our time. if i kind of run right down the row fairly quickly for predictions. a famous baseball player and philosopher yogi berra once said, it is very difficult to make predictions because the future hasn't happened yet but predictions, do you think congress will undertake substantive changes to the dodd-frank act either in the lame-duck session of the 112th congress or next year's congress? dennis, we can start with you and sweep down the line? >> i think it depends in part on the outcome of elections. if it is a roughly status quo election, president is reelected and senate stays in with democrats in charge and not by much and house stays republican i think substantive changes are not likely. i think there will be repeated daily attempts at what are called technical amendments and technical
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fixes which is going to be the trojan horse through which the industry will try to roll back moist of this which is what they have been doing the last two years. i think at the end of the day i think it will be difficult on a status quo political landscape of getting really big substantive changes. >> peter? >> i agree with that. >> see, we do agree. and we will have much slower growth in the future as a result of it. and that's what i'm afraid we're going to have to be looking forward to, if we have the so-called status quo election. >> rick. >> i don't think you're going to be major substantive changes. the law is still too new. it's being implemented and we like to say, you know on the bankruptcy option, that is an option of course to your earlier question but, but, we tried that, you know, with the lehman situation and we saw what can happen there. it causes systemic risk. what dodd-frank does with these orderly liquidation
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authorities it allows us to try to address this in much more i think thoughtful and hopefully active way that actually results, has a good result for the financial system. >> scott. >> i agree agree with that assessment what will happen next year. i think that will mean that the regulatory agencies will con it to work to try to mack make this law workable and balance out costs and benefits. but i do think overtime, maybe two or three years from now, we'll take a relook at it and there will be some changes to fix either things the agencies do wrong or gaps that emerge as we start putting this law together. >> thanks so much once again to gw law school and clef and professor bookman. give a round of applause to a fan tas -- fantastic
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panel. [applause] >> now, more on implementation of the 2010 dodd-frank financial regulation law. this panel examines whether dodd-frank goes far enough to protect the nation from another financial crisis. speakers include scott alvarez, general counsel of the federal reserve. richard oester man, acting general counsel for the fdic. this is just over an hour. >> thank you very much i certainly hope this discussion will be stimulating and exciting as the last panel. each will speak for 10 minutes. we'll have coliquy among panelists an open questions to the audience. we'll go to the following order. sherazad and simon third and
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karen fourth. so kick us off. >> thank you. thank you, art. it is a pleasure to be here at cleaf's annual event. i will not hope not to put you too much into a gloomy mood. if you're trying to predict what is the next financial crisis, i think it is important to discuss the changing nature of these crises. 30 years ago, we had what we gnaw affection atly call the traditional type of crisis. only happens in emerging markets and contagion of these crisis was regional. so if brazil got hit, latin america got hit. effects in southeast asia were relatively safe. but in late 1995, sorry, 1994, early 1995, the world as we knew it changed. mexico crashed and something very strange happened. within three days markets in hong kong, india, hungary,
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poland crashed. we weren't expecting this and we most certainly did not understand what transmission mechanism was in place that was causing world emerging markets to crash just because americas cocrashed. you know when economists can't understand something we give it a special name. we call it an anomaly. okay? [laughter] when asia crashed a few years later in '97 we truly understood something was different because it dragged down every emerging market in the world. and since this nasty animal, this contagion in the system, what we call fear now, if one emerging market gets hit money was being pulled out of every single emerging market blindly regardless of the reasons of the initial crash and at this juncture most developed countries and richfá countries and markets were relatively safe from the contagion. this was short-lived. as you all well know, late 2007 we crashed and we
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infected the entire world. this was a domestic crash beginning in the housing market that spread into the derivatives market and so on. but because of financial trade and remittance mechanisms, the entire world was impacted by this. but this crash brought to light this other transmittal mechanism that no one wants to really talk about. it is difficult to control and rational policy measures don't seem to work on it in the short-term. this transmission mechanism is about confidence, or in other words transmittal mechanism of fear. this is prevalent in the market. we see it. the development of global contamination of confidence confidence is partially responsible for why a tiny little country like greece can slow down chinese growth and stall a u.s. recovery. so predicting.
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but i tell you what, what is very difficult is what happens after the eurozone. . . >> so we're keeping them in. really, it's all about italy today. that's what the game is. we only hear about spain in the markets right now and in the news because there's an impending need of a bailout or, in modern language, we now call it a line of credit with conditions attached, okay? [laughter] spain is save bl, we know it.
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we worry about spain because what happens to spain may happen to italy. for example, if you look at the three-year bonds of italy and spain, they literally work in tandem. so we're a little bit afraid that if we let spain go, this might spill over to italian shores. if the markets seriously lose faith in italy, then i think we have some dark days ahead of us. but let me talk about right now because something has shifted, and then i'll talk about eight month months from now. until recently, the eurozone has been dramatic on its impact on markets everywhere. there's been a heavy black cloud of risk hanging over wall street for almost two years and a very big shadow, dark shadow, over global markets. there is a sense right now, and it's just very, very recent, that some of this dramatic black cloud is receding, and this is for a number of reasons. partly because the european
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central bank has managed to calm the nerves of the market, and perhaps we are thinking that this time it truly is different, that there's a profound shift in europe and especially in the germany. and the odds are that we might have some assemblance of calm coming down the road. what we are seeing is that the europeans -- and here i'm really talking about the germans -- have finally understood that while austerity measures are critical in the short run, um, doing too much of them without balancing this out will yield no growth in the short run, and then that's the bin -- the beginning of the end. so they have to ease off on that. more importantly, what they're actually understanding is actual crisis management, and it's happening. mario draggy, the european central governor, is delivering with his commitments of unlimited italian and spanish bond buying, his version of qe, but it's working, it's calming the markets. secondly, the europeans are embarking full steam ahead and committed to a single banking
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supervisory body which means about 6,000 banks in the eurozone are going to come under the european central bank in some format by 2014 starting with the banks that are receiving state aid and then larger cross-border institutions, most of the day-to-day oversight will be managed on a national level. but what you are seeing is effectively a banking union being created. i'll tell you what's even more important is what the underlying premise of this banking union is. it opens the way for the eurozone bailout to inject capital directly into troubled banks, bypassing the host government debts. and that's one of the critical factors here. it allows the european central bank to actually behave like a real central bank. it probably will have direct access to this bailout. and what this means is it breaks the vicious cycle between sovereigns and banks, and that is really what the market is looking for. this is what, why this plan is so important to the markets.
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i would still say one caveat here, we still have a long road to go because, for example, the germans, they want more control over national budgets by the european commission, but at the same time the banking supervisor authority, they want a little bit less control on that because they have some politically-sensitive savings banks that they want to keep out of the system a bit. i can promise you something, the germans will not agree to any plan that would mean rich countries underwriting banks of poor countries. that's off the table in more ways than one. so as i mentioned before, you know, we're seeing a sense that the drama of the eurozone is receding a little bit, and so the real question today is has it receded temporarily, or is it permanently gone? i don't think we can answer that question honestly until eight months from now, and that is when the italians go to election. that, i think, will be the marker. so if we look down the road, i really do think that the biggest
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risk for the drama to come back is what happens with italy. we really don't want a liquidity problem in italy to turn into an insolvency problem. that will be then the beginning of the end. losing mario monty or have some convoluted scheme of hoping there would be no coalition when the elections happened and mario monti would be called back in to make a government, that was a fantastic outcome, but i'm a little bit afraid if we arrest the recovery of the rest of the world on that, we are on shaky ground a little bit here. so while fears are calming in europe today, i still think there is risk in the system, and that will play itself out. there are a couple other things i'll mention very briefly. central eastern europe. many of the banks, hungary, poland, romania, bulgaria, are incredibly exposed because they get 90% of their credit from
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european banks. european banks are, obviously, under enormous pressure now especially given that any version of basel iii and other regulatory headwinds coming into europe is going to put more pressure on the banking system. so i'm very happy for this breather from the european drama, and i'm holding my breath until next may because i think that's the marker about if this is permanently bedded down or not. so not to end this on a gloomy note, i'm cautiously optimistic. [laughter] [applause] >> i think anna's going to take us back to title vii and derivatives and perhaps give it a lit of an international perspective on where we are and where the problems might still lurk in that area. >> so first off, thank you very much for inviting me to participate. i'm very pleased to be here. and to have the opportunity to
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listen to so many interesting viewpoints. i'm one of the horrible, horrible lawyers that work with wall street banks and other international banks, so that's my little disclaimer at the start. and i come to this, though, with a fairly open mind in terms of assessing the challenges that lay ahead as far as dodd-frank implementation and implementation of the regulatory reforms related to derivatives globally. um, to begin perhaps with a couple of themes that scheherazade pointed us to, it's very difficult in a field like derivatives to ignore the interconnectedness of things and the interconnectedness of markets. perhaps more so than with other asset classes in a typical
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derivatives transaction. you're usually dealing with multiple jurisdictions, you're dealing with one or more counterparties who themselves are organized in a particular, in a particular jurisdiction. however, they may act through other entities and may book their derivatives through a central booking facility which may be located in yet another jurisdiction. and those transactions may be guaranteed by other parties whether affiliates or parents that are domiciled in yet another jurisdiction. so it was, i think, pretty broadly acknowledged that derivatives played some role, though i would hardly say that they were a root cause of the financial crisis. but if one acknowledges that they played some role, it's
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clear that some changes were needed in terms of the regulation of the derivatives market. and i think that there was broad consensus among the g20 regarding the overall objectives or aims for derivatives regulation and derivatives reform. so first and foremost, that we had to increase or take actions that were designed to promote further transparency of what was widely perceived as being a somewhat opaque market, that we needed to, um, insure that there was integrity to the derivatives market and that this was done, um, by providing for reporting, by providing for enhanced recordkeeping, by providing for enhanced supervision of the various parties in the market. um, and finally, that we had to
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endeavor to reduce systemic risk. so if those are your starting, your starting principles, your baseline, um, from that it's, it's difficult then to test and to assess where we are and how title vii and how our counterparts in europe with missed and amir really the two crucial pieces of reform that address derivatives in the european markets, how we've fared and how far we've come. one of the principal concerns that clients have is that instead of creating a system, a regulatory system that has clarity and that provides for legal certainty, the implementation and the rulemaking related to title vii has provided anything but the
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level of confidence that market participants need. one of the earlier speakers made reference to the cftc having, um, acted very expeditiously and perhaps having taken the lead in being farther ahead than other agencies in the united states in terms of their rulemaking, and that's certainly true. the cftc has been very active in rulemaking related to title vii and in its implementation efforts related to title vii. the sec has lagged behind a little bit, and it's always important to remember that in the united states we've continued even with dodd-frank to preserve this duality of having derivatives be regulated jointly by the cftc and the sec which itself creates the possibility for legal uncertainty and ambiguity in certain cases which we've
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already seen with the proposed and even with the final rules. the cftc took a very particular tack in implementing title vii, and that is that over the last few years we've been barraged with proposed rulemaking after proposed rulemaking without there being, essentially, a comprehensive plan or a comprehensive look at what the new regulatory structure would be, what the new rules of the road would be. so market participants in effect haved have had to comment individually on various pieces of this puzzle without seeing the whole pudz l. and as we've started to see final rules and we now have many, many final rules relating to title vii implementation, we realize as practitioners and our clients are constantly pointing out that there are numerous issues where the rules that have been finalized don't actually
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work together. and where there are significant gaps created and where there are significant ambiguity. likewise, we are facing deadlines. for example, october 12th was a or very significant deadline most in the -- for most in the derivatives business. however, literally at the 11th hour on october 11th, regulators decided that -- wisely -- that market participants weren't ready, and there was a lack of clarity that would permit the markets to function effectively, and the cftc had to step in with no action letters, frequently ask questions, interpretive guidance and so on. to do that on october 11th and throughout the day on october 12th and well into the evening on october 12th, obviously, poses some real issues for market participants who are trying to structure their
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businesses in compliance with dodd-frank. perhaps the most serious issue and the area of greatest risk is to go back to my first theme on interrelatedness and interconnectedness. our scheme for regulating derivatives differs in some significant respects from the scheme that's being adopted in europe. while there are certainly points of commonality, for example, clearing and the clearing requirement, the requirement that most derivatives transactions be cleared through a central counterparty, that's certainly common. certainly common notions about margin although margin which is, obviously, incredibly important to avoiding and containing risk has yet to be, those rules have yet to be finalized domestically or internationally. general consensus on uncleared
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swaps. there's a complete lack of parallelism in many of the most crucial rules. so our definitions of instruments that come under title vii regulation swaps and securities-based swaps differ in sometimes significant ways from those instruments that are covered under the european regime. in the united states, our title vii requires that market participants, swap dealers, major swap participants and a variety, a host of other new players, dcos, etc., submit to a registration and oversight process, and that's a coordinated and national process. what we're looking at across the atlantic is that in large measure new market participants don't have any new registration obligation and entities like central clearing facilities are going to be regulated by
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national regulators so there won't even be a consensus or a coherent approach nationally. moreover, the extraterritoriality of our title vii has been, has made the united states a bit of a pariah in the sense that we've abandoned all notions, historic notions of national -- of deferring to and respecting foreign authorities and instead have decided to impose title vii very broadly to foreign banks and to entities that have relatively little nexus to the united states. likewise, there's some extraterritorial scope to amir and misid. none of this has been rational rised. basically what i'm telling you is there's no harmon cyst at this point between the u.s.
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architecture for derivatives and the regulatory architecture in europe. we even have different timing. so if we're to belief that the current -- believe that the current schedule will fall into place, entities in the united states will start registering in the late december or january and we'll start clearing at least the first series of swaps in about some time in about march, it's not at all clear when the framework that requires clearing in europe will take effect. so as i follow this warrant sufficiently concerning even if you look outside of title vii to volcker and to certain elements of the capital rules that apply to u.s. banks, it's not even clear that the, that dodd-frank lives up to its own mission. in some respects dodd-frank certainly encourages central clearing.
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however, it also penalizes banks from using central clearing through limitations on their exposures to certain counterparties without excluding central -- ccps from those limitations. that's only one of quite a number of important little idiosyncrasies within the law and within regulation as it's been implemented. so maybe to finish off, all of this everyone is sis on transparency -- emphasis on transparency, on risk mitigation in the derivatives area has boiled down to the conclusion that many of these dangers, many of these scary things are going to be fixed by central clearing. and that central clearing is somehow a panacea, because instead of having individual participants in the derivatives market face one another, um, and conduct their own credit
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evaluations and rely on their course of dealing over years, rely on netting which has proved effective for decades, instead they should rely on a central entity, a central clearing entity which needn't necessarily be a bank. so, again, it makes you sort of scratch your head if you wanted to make sure that you were moving important financial transactions away from the shadow banking system. it's odd that you would concentrate derivatives risk with central clearing entities that needn't necessarily be banks. finally, there's no architecture or structure for resolving an entity. so another theme that scheherazade talked about a little bit was confidence. so any financial entity -- a bank, an exchange -- relies and
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depends greatly on confidence. it's not unheard of that central clearing facilities have defaulted, have faced defaults in the past, have faced the failure of members. um, a lot of that fear people try and dispel and say that, um, there's portability, and you can easily move transactions to a different, a different entity, a different central clearing entity. well, the technology of that is not really well understood at all, and it's hard to have confidence in that. but moreover, it's not clear that without some kind of government sponsorship or government backing or access the liquidity a central clearing facility will have the confidence to avoid, essentially, what would be a run. and while dodd-frank actually provides for some support to
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central clearing entities -- which, by the way, seems to go mostly unnoticed by critics who say, you know, we've eliminated government support, we've eliminated taxpayer support, we've eliminated the possibility of too big to fail -- we do have a provision that permits intervention to help in a modest way financial, financial utilities like central clearing facilities. however, that's not universal. there's no provision made in europe to support whether directly or indirectly any central clearing facility. so in my mind we've created a series of risks within the derivatives area that were nonexistent before we began this enterprise. one, similarly be regulatory confusion, the ambiguity, the lack of uncertainty; two, the misalignment and the lack of harmonization between our
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regulations here in the united states and those in europe for a market that is recognized as being highly interdependent and international in scope. we've created a host of technology issues, and it seems a bit like hubris when we're seeing and faced with market glitches in our capital markets and our equities markets. it's not to expect and not to anticipate that when we move as much to centrally-cleared facilities to dcos without clear rules that we shouldn't anticipate some technology issues. and finally, that we've consolidated risk or will be soon consolidating risk in these new entities that without necessarily having a support mechanism to mitigate the possibility of a run and without having, and without having real clarity or a discussion about the merits of a resolution framework or a winddown
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mechanism for central clearing when we've, essentially, placed all our eggs in one basket. [applause] >> simon? welcome back, by the way. >> thank you. so i'm simon johnson, and thanks very much for inviting me, and thanks for organizing another great conference. what could cause the next financial crisis? i have three things to say. first of all, i don't know. [laughter] and you don't know, and nobody knows. i worked on financial crises for 25 years, i was in 2007 through august 2008 the chief economist of the international monetary fund just down the street. i attended a lot of very interesting meetings during that time period with top officials
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and top private sector people, people who know as much as can be known about the world's economy and the world's financial system, and they collectively and individually had no idea what was happening and what was going to happen in september 2008. the second thing i would say is look around the world. the european situation you heard a very nice summary just now -- i'm much less sanguine about the political risks and the economic risks. i think, ultimately, italy will have to restructure its sovereign debt, that's two trillion euros' outstanding debt. and the consequence of that are are effectively unknowable. but i won't just worry about europe, i would worry about japan. i wrote an article with peter boone that appeared in the
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atlantic saying that japan may well be the next financial crisis. and we've talked about japanese demographics and japanese fiscal policy, and we talked about the way that could impact both the japanese economy and the world economy, and i have to say that when we wrote that article, it was met with a universal, global stony silence. i don't know if you follow what happened in the ya news bond -- japanese bond market this week, the sell ah is now on the pressure of the financial institutions. i'm not sure if you've kept track of the imf's extraordinary warnings about the interest rate risk held by large japanese financial institutions. but if you're not aware of it, please, do read the front page of the financial times today. but i wouldn't just worry about europe and japan. i would worry about china. of i would worry about the financial risks in the chinese economy. i'd worry about exactly the forms of unforeseen contagion
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that we have experienced again and again since the mid 1990s. and that brings me to my main point which is what i don't know, where the shocks will come from. where the problems will emerge around the world. i do know one thing, we are not ready. our financial system is not ready. we have not gone far enough with financial reform. i endorse and support everything that dennis kelleher said on the previous panel in that regard. and let me put it to you like this: jpmorgan chase is the largest bank in the united states. it has a balance sheet of about $2.2 trillion on the u.s. gap. and when you see a lot of the comparisons of bank size around the world, people say, well,
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jpmorgan chase, largest bank in the united states, is between number six and number ten globally in terms of assets. all of those comparisons are wrong. they compare u.s. banks under u.s. gap with international banks, for example, european banks whose balance sheets are measured under ifrs. now, there is a fundamentally different treatment of derivatives under these two accounting standards. you might like u.s. gap, you might like ifrs. we can have that discussion from an investor standpoint. from a regulatory risk standpoint, i like and a lot of my former colleagues in official circles like ifrs. it's a less generous form of netting, but it has a better indication of the downside losses you may be facing as a taxpayer. if you convert jpmorgan chase's balance sheet to ifrs, it's not
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$2.2 trillion, it's $3.9 trillion by our estimations, and it is by far the largest bank in the world. sorry, it's much larger than the european bank, the only other bank that's close to it in terms of total size is bank of america. now, this is a $16 trillion economy, roughly speaking, jpmorgan chase, let's call it a $4 trillion balance sheet. let me ask you a very straightforward question. if jpmorgan chase were to fail or to be on the brink of failure today, a friday, would they be allowed to collapse like lehman brothers over the weekend? this is a hypothetical, just to be clear. [laughter] i don't want to be the cause of the next crisis. [laughter]
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could jpmorgan fail, be allowed to collapse? like lehman? anybody want to raise their hand, could they fail? in i see no hands. could jpmorgan be taken over and manage through liquidation in an orderly fashion without causing disruption around the world using title ii, the orderly organizational authority of dodd-frank? could that happen? could orderly liquidation impose losses on some creditors to jpmorgan chase? that's the essence of liquidation, without that massively disrupting derivative markets, other financial markets not just in the united states, but around the world? and let me make this question a little bit'dier for you by -- easier for you by telling you that there is no cross-border
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resolution authority. it's not legislated in dodd-frank, you can't legislate that. it's cross-border. it's not agreed among the g20 or the g7. the imf has been telling the europeans that 15 -- sorry, 20 years they need a cross-border resolution authority within europe, within the eurozone, and they don't have one because goths won't -- governments won't agree to it. and by the way, if you did have a cross-border agreement on how to handle resolution assets and liabilities with the french, do you really think they would follow it in a crisis? [laughter] cross-border resolution of global megabanks a physical, legal, economic and political impossibility. you will not see it in your professional lifetimes, and i doubt that your children will see it.
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i stand with tom hoenig, formerly the kansas fed and now the fdic, with sheila bair, former head of the fdic -- you must read her book, "bull by the horns," -- and with richard fisher and harvey rosen bloom of the dallas fed. mr. fisher says very clearly that our largest banks have become too complex to manage. they cannot be managed by their management, see the london wale as jpmorgan chase for an illustration. they cannot be managed by their shareholders, we can talk about hsbc and money charter. they cannot be managed or understood by their creditors. we have any number of failures across the european big banks to look at for that. and they cannot be managed by their regulators, by their supervisors. the largest banks in the world
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and in the united states should be made smaller, small enough and simple enough to fail. no funding advantage. there's nothing -- this is not a market. there is nothing about a market in the structure. it is a vast, nontransparent, dangerous government subsidy scheme. you, the american taxpayer directly or indirectly, stand behind the balance sheet and the risk of jpmorgan chase whether you like it or not. this encourages them to get bigger. this encourages them to take more risk. they get the upside. the downside is someone else's problem. in a world with these uncertainties n a world with these macroeconomic risks, in a world with so little capital in financial institutions including
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in leading american-based global megabanks, in this world where the shocks will come at you unforeseen from all kinds of places you could not have imagined, you must build a resilient financial system. that is what the economy needs, that is what the nonfinancial sector needs. you can listen to the lobbyists, you can listen to the special interests, and they will complain about their profits, and they will complain about the efficiency of the american economy, and they will threaten -- perhaps gently -- consequences for american economic growth. all of that is an illusion, all of that is a distraction. the real danger to the american
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economy in this context is that our largest banks will become bigger, they will take on a great deal of risk, and they will blow themselves up. and the costs of that whether or not you save them or rescue them or use different terminology, the costs of that -- well, the costs last time were estimated by dennis kelleher and his colleagues at better markets at at least $12.8 trillion, almost a year's worth of gdp. next time could be worse. next time the losses could be much greaser. next time the damage -- greater. next time the damage to all of us, to american citizens, to our place in the world could be much greater. thank you very much. [applause]
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>> karen, do you have any good news to give us? [laughter] >> well, i guess i'll start by saying my dog's so comfortable, i'm going to stay here. he's heard some of what i'm going to say before. [laughter] and i think he sides more with simon. [laughter] actually, i do too in a number of ways that probably will surprise him and dennis and others. and the first thing on which i agree with you, simon, is that i also do not know what the next systemic crisis will be, and i am as frightened as you of it. so when i think about what the next systemic crisis might be, i think the best place to start is to think about what's caused the last ones, and i'm not going to fight over whether we've had panics in 1907 or 1933. we heard that from the first panel. i'll just go back over the last 20 years for the systemic crises we've had most recently. the first one in 1994,
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scheherazade, you mentioned mexico. and that was a solvency crisis because we feared that a country would go bust, ie, its credit was no good, and that would ripple with dangerous effect through the banking system. that got handled, and we puttered on til 1998 when russia and indonesia posed financial risk in the solvency system, and we managed that and puttered along, this time not so long as we hit 999 and a hedge fund called long term capital management blew posing what anna described, comb plexty -- complexity risk, raising the prospect of a shadow institution unregulated by the banking agencies would have caused so much damage to the banking sector that the federal reserve -- in my opinion very inappropriately -- rushed in a package of assistance supporting
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the hedge fund. that was '99. complexity risk, maybe a liquidity risk scenario. we puttered some more, this time just two years to 2001, and we had one of the mostfrightening cases of systemic risk when the world trade towers came down. at that point because of where the terrorists struck not accidentally -- they meant to hit the heart of the financial system along with taking out thousands of innocent lives -- we came very close to a shutdown of the global payment system. not a small issue, because all of it was pretty much buried under the towers, and it blew. the fed rushed in with $87 billion at that point, more than it had ever put into the financial crisis -- in the financial markets ever before, basically took over the payment system, held the system, the world together with glue because no one expected this, and we came out the other side. that's operational risk.
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we don't think about that much in financial markets. the solvency risks, the credit crises started back with the so-called less developed country, one. complexity risk was starting to be thought in '99. the concentration of systems, their complexity and the dependence of the world financial markets on their plumbing, this infrastructure, that's operational risk. that's an important force -- form of systemic risk. after 2001 puttered again, and then we hit 2007-2008. and i think i'll call this crisis what maybe, simon, you would agree, the evil banker hypothesis. [laughter] in which -- and it was not just bankers, shadow bankers, rating agencies, regulators asleep at the switch, sins of mission and commission, and we came very close to the brink of another great financial crisis.
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fine. then 2009 we had the euro, european crisis. it was, of course, going on before, but because of the weaknesses exposed in the 2008 debacle, all of the papering over that european regulators had been doing for decades -- simon rightly alludes to that -- was nakedly revealed, and we had the e.u. crisis. now, 2011 another operational risk crisis, the japanese tsunami and earthquake. these things happen a lot. that is my lesson. and it's not just the evil banker hypothesis that accounts for it. they are very powerful, to be sure, but they still live in a world of dangers beyond their control. and, indeed, beyond the regulatory control. so what should be done about all of these causes of systemic risk in this complex and dangerous world? i think we need a balanced regulatory structure. not a few simple fixes which
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largely rely on capital. capital is very important, but it doesn't cure operational risks. you can have buckets of capital, but when the lights go out, you can't find it. you can have the same buckets of capital, but in a liquidity crisis if your capital is not in readily-accessible form, you can't mobilize it to support your institution. life is more complicated, banks are more complicated. we need different cures. you could cut banks down to size if, as simon suggests. you still have to answer one get; who runs the infrastructure? anna discussed the infrastructure in the derivatives arena. there are many others. we need to think about that. even if you chop jc -- jcpenney -- [laughter] jpmorgan -- far more formidable -- into little bitty
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pieces, you'd still have to deal with the payment system on which all of those little bitty pieces still need to sit for us to have an efficient financial market infrastructure. and i don't know how little and itty and bitty those pieces should be. i've read the fisher paper, i've read many others. i see a lot of discussion of making banks smaller, not a lot of agreement on size or how to. the only specific proposal of which i'm aware of in the policy arena is legislation by senator brown of ohio to require banks to hold no the more than 2% in their wholesale liabilities in relationship to gdp. and that's a number we need to think about that. other people have lots of other numbers. as dodd-frank demonstrates, these issues are imperfect. i think jerry said that. this is tough. we can debate the size and the complexity issues, but we're in a dangerous world. so what to do now.
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and i think here we need the balanced regulatory framework i mentioned before, a few relatively simple things. the dodd-frank framework, the basel framework, the global regulatory arena is very complicated with a lot of unintended cross-cutting of facts that i think of about as, like, bumper cars. the studies that were discussed that my firm put out were discussed a bit in the earlier panel try to take this on by looking at the array of major financial rules, mapping them out for both their key provisions, intended effects and unintended effects. we don't say all of these unintended or even perverse results will happen. we map them out to see how each of the rules fits together if there is a coherent framework. dennis kelleher commented that this paper was sported by the -- supported by the securities industry and financial markets association. it was. i don't need a hobby.
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[laughter] but it's my work, my firm's work, and i welcome any comments and questions on it. and if there's anything wrong with it, we'll put out a corrected version. it was an attempt to be constructive and look across the framework of rules to see how they all might fit together. then we looked at the operational impediments to acting on rules. assume for the moment every unintended consequence in each of the rules in the map wrong. could all of the rules that deal with the evil banker high hypots and the liquidity, the capital, a couple of the other systemic risks, could all of them be implemented? and i think the answer there is, no. we have an ideal global capital rules, but we don't have global accounting rules. we don't have the extraterritorial rules of the road. we don't have key, fundamental tenets of making a lot of rules work, let alone the supervision and the regular ha story capacity to insure -- regulatory
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capacity to insure they do. so what are the priorities? in my opinion, first, they're finalizing the orderly liquidation authority in title ii. our third paper takes a hard look at this to see if, indeed, it is a robust end to too big to fail, and i think, simon, you and i will have things to debate on that and differences of opinion, but i think it's an awesomely strong first start. is it perfect? no. is it tested? not yet. but it is a meaningful statutory barrier to too big to fail. we need to make that happen and make it robust. the regulators have all the tools they need. if a big bank, jpmorgan, b of a files a, quote, living will and doesn't show the banking agencies that it can be resolved under bankruptcy, dodd-frank gives the banking agency the power to break that bank up into whatever pieces seem right to the agency so that it can be
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resolved. if it's too complex, dodd-frank tells the agencies you go, you tell the same complex banks no more cross-border branches, structure yourself in subsidiaries is so you're more easy to resolve. we need to hold the regulators accountable for acting on those living wills so that the big banks are, as the law requires, made more resolvable, not just stepping away and saying, well, it won't ever happen, let's do something else which no one agrees and which few specifics are yet in hand. orderly resolution, i think, is important and vital. new capital rules, new liquidity rules and a keen eye to operational risk management, all of which can be best insured not only by new rules, but by tough standards that hold corporate boards of directors at the top and senior management very accountable for insuring that their institutions take no more risk than they can afford on their own.
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thank you very much. [applause] .. has shifted and the market perception and reaction to that risk. it's more visceral, it's faster, the damage is more and we know the next time this happens and it happens for real, like simons says it's been reiterated it is going to be much worse.
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>> sorry. [laughter] >> anna? >> the papers that will put together were wonderful and their comprehensiveness and their clarity. and in highlighting that there are so many unintended consequences and so many crosswinds even within the rules that have been adopted and of those better yet to be finalized that it does create a great deal of complexity even with the boards accountable they want to do the right thing. at this point we find there are so many boards that are struggling and spending so much time, simply trying to understand the rules, the interplay of the rules and then lastly, on the operational difficulties, we are introducing quite a number of new entrants a few well into the system for dodd-frank. but it is the central clearing,
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and i think that we are all sort of understating the complexity that is involved in handling all of these and in have been prepared to sort of flipped the switch to do that in a way that we all have great confidence. >> simon? >> three small fall points, one for anna. to many of us to produce a peak in these discussions and follow dodd-frank and the regulatory hearings, the complexity of the current regulations looks very much like the outcome of an enormous amount of insistence on the complexity with a lot of added rules of of the carnival volcker roll and you turn around and say now it is so complex it isn't workable. so you have to excuse me and so many other americans for feeling -- [laughter] for feeling that the industry is playing a deep clever strategy
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essentially at the feeding the financial reform. prove me wrong it is just a result of the work, change the attitude and becomes cooperative with the cftc or the fdic or any other agency and really shift away from this lobbying by would be huge. i would be happy to write about that. second point or two points for karen. i read your papers and they are very clear and forthright and you should be commended. but two questions come to me. first of all, do you agree that under the current circumstances, the current market perception of this critical but a very large bank holding companies can borrow more cheaply than is the case for smaller and
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medium-sized banks and this may be due according to fisher and tom and sheila bair it may well be due to the perception of too big to fail and the second question is why i understand your points about the liquidation. they are operating in 70 countries, 100 countries, jpmorgan chase looking around the world with these cross border jurisdictions that anna summarized for the transactions. how well the liquidation be implemented by the fdic and presented by the treasury when these banks are so large and complex and the cross resolution
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authority. i would again agree with you. the body of law and the rule is incredibly complicated. some of that does pertain to the evil linker hypothesis amended here by the corollary eisel lobbyist hypophysis. [laughter] but i would add my own cause which is the cubicle regulator by the expert lawyer hypophysis. maybe in my practice i spent a lot of time buried in the battles of these rules, and when you say okay i think i had it, here's the definition of the proprietary trading, someone will say it was the case in 1842.
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so for this to be really clear and that is maybe get a lawyer in but it is incoherent rulemakings. i don't know what to do about it i just cite this as one of my personal hypotheses that is a big problem of complexity risk. and why i go back to some few clear standards to which we told institutions accountable i have written on the rule and of my own view and you can't control what you have to make some clear decisions here. this current never land largely constructed by people trying to do the job they've been given is stalling financial markets in place and it's creating a very predict other dangerous form of systemic risk which gets to the two questions. we have a square peg which is the market perception and very big banks remain too big to fail
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in the whole of the orderly liquidation authority which is a flat statutory prohibition in the united states to doing so. now some people tell me that the answer to that contradiction would be that congress would intervene and fix it somehow and when you find a congress that fixes anything any time, you let me know. [laughter] the law is very clear. could the fed is somehow override that barrier and a step in? mabey. title xi doesn't get a lot of attention. it borrows the fdic from giving a lot of what they did in 2008 quite definitively. so, at the very least, it is hard if not impossible. so you have a very bad situation in which markets may well be in the ongoing moral hazard accounting from some of the funding the financials but simon white fleet references.
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at the same time they are playing in morrill without the safety net that would save them meaning that market shock in the case of either operational solvency or riss get a larger institution would be worse it would be lehman brothers on steroids. that's why it scares me and i go back to meeting the orderly liquidation authority. could it work in the cross border situations? does anything work in the cross border situation squawks not well. about 80% of u.s. bank offshore assets are held in the u.k. and that is true for the wholesale oriented institutions like jpmorgan. they are operating in 70 countries but trust me with a cotton bulgaria is not systemic. medium bulgaria it is. to chase and the united states or the u.k. it isn't. that is why they are very far
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along in what they call a crisis management group is a done? no, should they finish, yes and then i think i can answer your question of confidence. it's got to be unwound some point and that is a great market timing issue and concern which might be the next crisis. another thing is what we have all heard today dodd-frank isn't perfect, but it's also, you know, it has useful elements, it has elements that we ought to think about. it's a scary one because the world in the markets and everything else involved.
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we are like the french people are going to go around it. give us a very short observation what does that mean for us on monetary policy? >> i would encourage everyone to read the work. it published in 2009 it's called the blob that ate moderate policy, and the talk about how there's too big to fail financial institutions having big losses operating in a clause i zombie form, meat thermometer it was a much less effective when you going to the crisis.
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assuming that we recover and i think we will recover and to control the economy and the impact of the various things we will have in the fiscal policy. what i would worry about is not so much the direct impact on us, much more on the stock market to go down. to the europeans and what it means to the u.s. treasury's paradoxically. what is it going to be done in france or spain. the shocker index is very important. we are going to come back
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through the financial system and how that impacts. i'm not saying everybody here is evil. they're doing their job. don't lawyers have a responsibility to advocate on behalf of their client? that's what i thought. absolutely. so that is what people are doing and i don't think -- actually i don't know if they were evil because they haven't been prosecuted. however, i would not assume -- it's not my hypothesis. my hypothesis is people were doing their job and the management was acting in what they perceived to be the interest of shareholders, the fiduciary duty after all, and that is exactly what can lead you into a huge disasters.
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people doing their jobs and taking risks and a certain way. >> i don't think it is their job, but does doing their job mean for the shareholder value of the washington mutual? wachovia? any of the biggest banks which are trading at a very small fractions of their book value? every one of the board directors and every one of the ceos including some incumbents were not doing their jobs nor were their regulators. >> the stepped down two years ago and the crisis she fell in october of 2008 it is down 92% during the tenure in the job where was the board of directors today. they are going to compare the price of the books and again
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this is what was lost for example. >> they will make them more efficient. >> pilat fiduciary responsibility of a larger scale in this town there has to be a long term economic plan on how we are brand manager over the next ten years if we don't convey that for the market we are setting ourselves up again. >> i will conclude by saying that someone was talking about the issue of why the u.s. dollar was the strongest currency and by the treasury was the most sought after global currency, and an expert said you have to realize that the u.s. may simply be the most attractive horse in the glue factory. we should try a levesque to get out of the glue factory. that should be our resolution the next year. please join me in her thinking the panel for the conversation. [applause]
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recently held a daylong conference focusing on the balance between government secrecy and the transparency and public access to information. this panel includes remarks by security and legal officials. it's just over an hour.
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>> i want to think a number of people before we get started. first i want to of thank susan for putting this together and for her dedicated staff of in terms fellows, fellow travelers and everybody else she could find to help her. thank you very much, susan. i want to thank jpmorgan chase for sponsoring this event and the foundation for also providing some support and i want to thank the friends of the center that contribute to all of our public events. and for all of you in the audience to support us, with your gifts it's made a huge difference for us, and allows us to do all of our public events. so let me turn to what we are going to turn today which is to look at a topic many of us looked at for years ago and that
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is secrecy and national security and how it functions within our government and how our government functions given the tension between secrecy and transparency. i want to raise a few questions and then let the first panel and the rest of the panel talk about this and then i will moderate a discussion that in the end of round things out and talks about where we should go from here. but there are a lot of things in the secrecy and transparency conflict or debate that people don't talk about. and those are the things i want to talk about today and then our panelists are prepared to talk about. it's not just of out one-liners. should the government be allowed to keep secrets and is national security a catchall for more than it should be? excuse me. and it's not just about how much transparency the public should demand. we live in an age where else you
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know, information is more accessible than it has ever been before coming and we live in an age in which information is classified, and more classified and we are told it has ever been before. what is the upshot of that? and that is what we are we did talk about today. what does that mean in terms of the public's trust in the government? what does it mean the government's desire to tell a story and not being able to tell its story? what does that mean if you can keep a secret whatever that may be for your accountability? how much does it make you not want to think about what will appear in public with their id is an issue of the predator drone strike or an issue of potential terrorist attack or anything else or an issue of the cyber threat. these are the kind of issues that the american public doesn't have clarity on and doesn't understand the nuances of. it isn't a she said she said. one of the things that is the most significant about this is that when you get into a
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situation in this area as in other areas and national security, if you don't know the facts it's hard to have the debate. what we have done is organize ourselves a little differently than we have in the past. as of those of you that have come to the conference, i don't know usually what you see on the panel is a heightened dialogue which doesn't avoid conflict in which there is debate within each and every panel. today is different. today we are allowing each panel to stake out a certain amount of ground that the government and about the public. and then at the end, we will sort of see what kind of middle space we can come to. the reason we are doing this conference is that one of the things i think the american public needs to be paying attention to in a way that they are not paying attention to it. there's so much going on and the
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headlines are about who is being killed and what al qaeda is and the threats that face us. but there are general philosophical deeply important issues that we think we need to think about, whether we are thinking about the pathology of secrecy as senator moynihan described it and as others have described it. it's time that we take a look thoughtfully without any kind of distrust and one another and whether you are in the press or the public or whether you are in the government so without further ado when they turn to the panel. you have to rebut these biography we are not we to make a long introduction with anybody today. the first panel is andrew kent professor here at fordham law
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school. [applause] i would like to introduce the first panel starting on my immediate left, neil macbride for the eastern district of appointed by president obama previously served as the associate deputy attorney general in the department of justice and in several other senior government calls. moving to neil's left, we've kenneth wilmarth at taft, homeland security advisor to president bush, prior to that assistant attorney general for national security in the department of justice and the united states attorney for the district of columbia. and then rounded up a panel on my far left, is the honorable james robertson, retired as u.s. district judge for the district of columbia appointed by president clinton 94 and served on the intelligence surveillance court. thank you all three of you for coming. we will start with panelists making remarks and then move on to the question and answer. >> thank you. karen come thank you for putting
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the panel together in for inviting me. i've been involved with karen and this organization and its predecessors since 2005, and it's one of the most fun things i do. beyond my day job is to get to be in discussion with many of your rent the room from old friends, and great to meet some new friends as well. let me just throw out a couple of first principles regarding secrecy, classified information and then make a couple observations about the cases of which my district currently has several under way. first a point of agreement i think for everyone on this panel. i assume everybody in this room, the importance of a free press, and the need to avoid interference with its appropriate functioning.
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the stipulated believe that the vigilance media is the core pillar in our democracy and the one that helps ensure transparency and accountability by government. a second first principle is however vital the need for an informed public may be it's also true that the disclosure of certain highly classified sensitive national defense information security grounds the protect the secrecy of information critical to the national security and the right to free speech and the value of the informed citizenry is not absolute to the nation's security as the fourth circuit said in the u.s. versus morrison
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they said public security can be compromised and to raise the information is needed for democracy to function and the physical security which a functioning government requires or as the district judge in the district of virginia couple of years ago he wrote to the defendant's first amendment challenge to the espionage statute is the tension between the government transparency so essentials of the space society on the one hand and the government's equally compelling need to protect the disclosure information that could be used by those that wish to do the nation harm. the tension between the two principals, the first principles as i call them is not one that will necessarily resolve this morning but i mention them because it does and for how the justice department views national defense information and
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our response to any investigation that we may never take. let me quickly throw out for propositions regarding the cases and investigations. first as you probably know there is no general weeks statute in the united states. sometimes that is a surprise to folks. and so the department relies on the federal law that is almost 100-years-old and it borrows the national defense information a term used in the statute. the basic provisions that come into play in title xviii sections 794 and 793 come section 794 you may know is kind of the classic espionage statute covered for the foreign citizens punishable by it to life in prison. that is historically the statute my district used to prosecute
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cold war spies like robert hanson or oliver james. a second provision section 793 is kind of everything else. it's punishable by ten years in prison and prohibits the disclosure of national defense information to any third-party not entitled to receive it. second, the justice department focuses on the most serious weeks of national defense information. not every week is created equal. and many may involve sensitive information, even classified information but not information that is defined as national defense information. as the circuit wrote, could come the espionage act has no applicability to the multitude that pose no conceivable threat to national security but threaten only to embarrass one or another high government official. as somebody once carefully remarked in truth the doj only publishes one were to of the
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needles in the haystack if you will in a given year or a period of time and the congress has afforded a very robust whistle-blower protection and putting the folks that work for the military or the intelligence agencies. so our focus is on the most serious of those. the cases are tough to make. the fourth circuit ruled that, cocom violations and the is the object or difficult to prove their for their relatively rare. violations under the act not easily established rate of the act with the intention of concealing their conduct they try to link the trails. moreover any prosecution under the act will in every case pose problems of balancing the need for prosecution on the one hand, and the possible damage the public will require why we have additional disclosure of the vital national secrets and public trial.
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duraid the focus on the leakers. and it's often very difficult if the individuals may have access to the information. the second point, the fourth circuit was making the sort of catch-22 of how much pain do you want to incur as a government disclosing additional secrets to show how damaging the secret was, or one of the defense counsel men wrote on the "washington post" he said the key central question is the intelligence community willing to spend a thousand dollars to save a hundred? and that is an issue that comes up in these cases frequently. finally, the doj is always mindful of the first amendment implications in these cases.
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and it is a recognition as i said at the outset of the importance of the freedom of the press, and it is all policy that our prosecutorial power shouldn't be used in a way that impairs the of reporters responsibility to cover as broadly as possible controversy on public issues. that said it's the department's view that for 40 years the supreme court has held clearly that there isn't a reporter's privilege that allows reporters to avoid testifying in response to a grand jury or trial subpoena issued in good faith in a criminal case. and the courts have consistently upheld the espionage act both 794 and 793. again it's not only the government leakers against third-party is who received the reformation and disseminate it further. even in the case in my district
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the judge wrote very quickly that the government can punish those outside of government for the unauthorized recede and a deliberate transmission of information relating to national defense. that said, i think everybody knows that the justice department for over 40 years has never charged a media organization with the on often biased publication of national defense information. so, those are just a couple of first principles and some observations about the statute and how it works in the real world from a prosecutor's perspective. thank you. >> thank you, kent. >> i also want to say thank you to karen and all the folks for putting this on. this is an icy wind and i'm always happy to to the pit in the group and find a lively spirited discussion always in agreement but that's the way it ought to be. we always learn about the issues
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when we come to these events and care and does a great job on them. sort of a full disclosure obviously neil is the current government guy and i am a state government guy that i'm not in government but i think about this issue as though i still work in the government because that is how come at the issue. some going to echo what neil says on a number of different perspectives. first a fascinating topic there is a tension here and there is no better way of highlighting the tension between transparency and national security and effectiveness looking at this issue of leaks and the ability to maintain confidentiality in the security operations. it's i think anybody that's been the government recognizes that the transparency and the scrutiny that is brought by the
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media is a good thing. obviously it helps the abuse and fraud and criminal conduct but also just as a government official when you know that of the press is looking at you it helps keep you on your game. think a little deeper about issues because you know someone is watching you and as read be scrutinizing what you do and that is a very good thing. so, when we look at when and how to prosecute the cases, the government always has to think about every step they take is this going to in any way change their effort to keep on of the government is doing because that is a fundamental basis of the democracy. when you look where the press is today there's been talk about how there's a record number of prosecutions but i think it's hard to say the press is diminished and its ability and its eagerness and its enthusiasm scrutinizing the government
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operations. you look at the front pages and you see the probing and always is, the government is doing and to see the disclosure of the government missteps and misconduct. from my perspective i don't see that the press is based on some aggressive prosecutions by this administration has been in any way children its legitimate efforts to root out misconduct or ineffectiveness in the front and a part of that is what the government is due to what neil said. the department of justice does not have a track record going after reporters. they've never prosecuted the organization, never prosecuted the reporter, and rarely actually compelled the reporters to turn over the names of their sources. they've only been two or three dozen or so subpoenas issued over the years to the reporters to find out information about the sources of information they disclosed. and i think that restraint is
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something that gets lost in this discussion. another thing often gets lost the damage that is caused by leaks and this gets back to the fact trying to pull out today it's important we step back and say what is it the government worried about when they say we shouldn't have leaks? is it just preventing in paris and the airing of dirty laundry? i get it there are different types of leaks where you have stories to get out in the press that public officials don't want out there and we've seen some of them in what the wikileaks disclosure in paris in language and stories that got throughout the diplomatic cables. that is in the damage that we are talking about but we go through the types of damage they can cause and any of those that have been in the national security arena and john is going to elaborate on this we know and feel the impact that this type of damage has.
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first they can damage our operation. i think that is pretty straightforward. there is the disclosure of the movements like there was in some of the wikileaks disclosures. that's something our enemies and adversaries can use against us. there was disclosure five years ago of a very responsibly run and a very effective program going after the terrorist finances called the swift program. once that got out that diminished our ability to attract the financing of terrorists and that is a serious damage to our operations and to our sources. much has been made over the last ten, 11 years to have human intelligence, and human intelligence is intelligence officials going out and developing sources. human beings that are going to get inside the organization we have and tell you what they are doing. we allow that to pass after the fall of the berlin wall and after 9/11 it's clear we didn't
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have an insight into what they were doing because we didn't have that intelligence. so we need to develop sources and the government has done a good job in the last years of doing that and that is why we see them getting taken off the battlefield in a pretty impressive rate because we have people inside telling us what they are doing but whenever one of the sources is disclosed of only as a compromise that source, but it underlines the government's devotee in the future because to cultivate the sources, the potential sources feel like they can trust you to keep their identities secret. like the other day when we heard about it being in the middle of that, the flailing of that airline plot but obviously tipped off our adversaries on who that was. it was a bad thing not only for that source but the cultivation program in the future. a4a type of damage that it causes is it obviously
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compromises government personnel and as john can tell you from his personal memory in the 70's publicly he ended up getting killed. it can compromise the efforts. a better example life and then the disclosure in 1940 to write and it was by "the chicago tribune" of the fact that the u.s. and the allies had broken the japanese code. fortunately the japanese didn't pick up on that, so they didn't take any action to change their code, but that could have been incredibly disastrous if it had been picked up and that is a classic example of a method that gets disclosed that our adversaries can use to adopt their obligations for the methods and a lot of times the damage right to site is this is something people don't get or don't recognize it is caused to our alliances and in any of the and national security operations particularly counterterrorism
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when we talked about it it's our international alliances, how well we work with the u.k. and the pakistanis and any country that shares our interest in combating terrorism and whenever a foreign service sees that we allow the name of the source whether it is their source for hours to be leaked that undermines their trust in us and about alliance and that can be devastating to our operations. so, there are a number of different types of damage or different areas of damage they can cause and there are different types of leaks to reply also get the there different types of leakers. you have the folks who betrayed their company for money because they come in line with another country that is the classic. you have the people that like to tell secrets because it makes you feel important because they liked the attention.
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they like to be in the know. you also have people that leak because they see that there's misconduct or ineffectiveness or fraud or something like that in the government and they want to expose it for an admirable reason to their whistleblowers said there are different types of leakers and of the last category is the most difficult one. the whistle-blower motivated for all the right reasons. now we do have something in place which is the whistle-blower statute that says a person that has that kind of information that feels the need to get out doesn't need to go to the press to get the concerns in doubt but can go through an internal process and the intelligence community can take that information and in other words they can stay with in the classified secure channels and it can still give the people outside of the organization of
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the employee has concerns about. if that is perfect of them there is no argument to go to the press but that is an area where the work is needed to make the whistle-blower complaint process user friendly and make absolutely sure that when someone has a concern and they raise it they should have no concern that they will be retaliated against bye anybody for raising those concerns. i know the congress is looking at that right now. so, the upshot of this is there are serious damages caused by leaks and the leaking set up by the whistle-blower statute. so i take from that that there are certain cases where if someone goes ahead and leaks the question of information and doesn't off to go through those channels that in certain circumstances there is sufficient damage and malicious intent there should be the prosecution's and the question is is that when to kill the press with it is the prosecution's of the press or of
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the leakers themselves. and i say to sort of come back to my first point know it won't kill the press and we haven't seen it kill the press and there are a couple of reasons why. first, and this is what neil diluted two they should show some restraint in the there are a number of reasons for it. one is that they recognize that this is a delicate area and that they shouldn't go rushing headlong without thinking about the personal implications. but also, as neil said these are difficult cases and in the national security, i've dealt with this. they're very difficult to put on for a number of reasons. one coming you'd be surprised how many people usually go right into these very sensitive programs. there are many people that might have been the leakers so it might be difficult in the first place. second, there are strict procedures in place you have to
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go through in the department of justice and the attorney general before you can even subpoena or indict somebody. third another thing diluted to oftentimes if you are thinking about prosecuting someone for leaking the cia information you will get a call as i did from the general counsel that the cia saying you know, appreciate what you're trying to do, appreciate the need to detour them by prosecution but it's only going to highlight the information that was leaked so they get broadly disseminated and it's going to require disclosure for the information. it's not worth the gamble. often the government will back down from the prosecution's that are righteous and well-founded because of the concern about disclosing even more information and then the last reason the cases are few and far between is that the end up facing strong challenges in court. they get the best defense
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attorneys and their very difficult cases. that's why the case ended up getting dismissed read so the reasons why i think we don't see this chilling of people concerned at least not the degree difficult cases and also the government of the department's restraint and as said not once has the government actually prosecuted the press. the weaker. obviously we can't speak about that that would be an interesting decision to see whether in that case there is a prosecution of the recipient of the information. so, in conclusion, in the post-9/11 world where there is a lot of national security operations going on, all over the world there's an intensity of the operations and there is a need for the confidentiality and the need to keep secrets the is
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the need to strike that balance and the balance between transparency and secrecy and the government struck in a certain way and i think it's important that we keep sort of scrutinizing that balance that it's calibrated right and that's why i think these kind of forms are a good way to scrutinize the balance and make sure that the government is on their feet past. thanks. >> thank you. judge? >> i too. i was surprised until i realized there were not many judges who will talk because they are still on the bench. but since i'm not on the bench in the longer people think i will reveal all. neil macbride and kent are the distinguished prosecutors i've ever ran across and by the way i've run across both of them in
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washington and i have no problem with what they are doing, but their presentations about the prosecution of leakers and the importance of prosecuting macbride -- leakers is as a given and in some sense it begs the question that i hope the conference will address which is why do we classify stuff and how much do we classify and why do we need to classify it and is it really secret? nobody disputes the proposition that governments have to keep some things secret. but let things coming and for how long and at what cost by which i mean not just dollars to maintain our complex security system, and it really is impossibly complex. the cost in terms of public
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understanding, participation and trust in government. i'm not an expert in this field. my experience is i think of myself as a cog in the government and i haven't encountered a lot of it. my first encounter is when i was a lieutenant in the office of naval intelligence and i was doing an administrative job while going to law school and the admiral decided that he wanted me to be a briefer which was a really big deal. i would get at 3:00 in the morning and read all of the intelligence reports and go brief the had and models. i needed a special clearance for that. i have a swedish wife.
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[laughter] he said that won't be a problem and the next day i was cleared. it was a very flexible concept whether i could be cleared or not. i had to deal with the information procedures act which is a complicated set of procedures for the government has to deal with if it wants to if it is dealing with a case that involves classified information. i had to deal with employment cases in which someone has been fired from somebody's been fired because his or her security clearance has been taken away and you had to struggle with that question about to what
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extent a judge has anything to say about security clearances. the judge had nothing to say about security clearances. i served for a time on the court the court that decides whether or not to issue warrants for the electronic surveillance and basically in the terrorism cases what i learned there and i think i can say this without disclosing anything i shouldn't disclose is that most of what appears in these highly classified top secret documents on a regular basis is totally banal. there is so little the man in the street needs to be classified and the way the
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classification of people think if you disclose this going to lead on to wally and ze and somebody will put it all together and the people but with the classification of the documents have a way of thinking that is almost in its complexity, think about guantanamo bay. the lawyers that represent guantanamo bay have to keep them secret and they are not permitted and read the things that a public but has been classified at some point and the lawyers are hamstrung. there's all kind of stuff they can't read that everybody else knows. they can't talk to their clients
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about their clients have said because that's classified, the record of the clients have said is classified. everybody is tied in knots dealing a whiff these security issues and the judges really don't have anything to say about it. it's a matter of executive decision about what is classified and what's not classified. this country has what i would call a serious addiction problem with security. this book -- this book was published after i went on the bench and of course i didn't read anything after. this is daniel patrick moynihan's book on secrecy. this is required reading for anybody that is interested in the big picture of secrecy and
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what moynihan called the pathology of secrecy. he traces the explosion of the secrecy culture to the atom bomb and the cold war. it existed before that and he traces the history but it exploded with the atom bomb and the cold war and has become pathological. moynihan says secrecy is for losers and he paints lots of pictures but one of the interesting one is the bay of pigs fiasco in which kennedy and his people relied on intelligence reports rather than what was public because intelligence reports were more sacred than what was public and there's all kind of things the
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cubans will resist an invasion and if moynihan postulate if that had been taken into consideration the bay of pigs never would have happened and the embarrassment we suffered because of it never would have happened. karen mengin the information explosion in recent times, facebook and trotter and how nothing can be secret anymore and there is a body of the population who believe as sort of a religious first principle that information is free and must be free and information must, you know, must know no bounds. well, the world is kind of beating that way. and the notion that we can bottle with up and secure it is at odds with everything that is going on in the internet and in
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cyberspace today. i don't have the answer. i know it isn't another commission. maybe what is going to happen is the information age is going to make everything transparent any way but i myself am concerned about the amount, the finality of the cost of security of secure information that we try to bottled in this country. i think if we tried to enact a statute that says we are going to be classified what needs to be declassified we would create
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a lot of jobs. i think there would create a lot of jobs but would be expensive and would take too long. we are just from drowning in the classified information. thir doing their best and i give them all the credit in the world for prosecuting the people that leak but some of what is leaked is dannel and seriously damaging to national security and who is going to decide which is which? i don't know the answer to that question and i hope this conference will help decide. >> thank you very much. picking up on the judge's comment on the over classification and questions about motives and incentives within the executive branch also the apology of the whistle-blower, the spot, the big talker, can we talk fled
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about an additional title of leaker we call the offer -- call the unauthorized leaker individual that leaks secrecy play like the f roane program, rebel the important national security program of the united states one that is in large part classified. there is a need to talk about it through of the lead but other parts are secret. i am wondering from what the prosecutorial and the sort of policy-making executive branch perspective how do you manage striking a balance between transparency and secrecy in an area like that. neil or kent? >> let me address returning complement to judge robertson.
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we were in d.c. back in the day and he was one of the giants of the bench and i would appear before him and i shall not quarrel with him now, but i think the judge made a point that again i think would probably be a point of agreement among the various constituencies who come together in a conversation about the issues we are talking about this morning and i think the and the ministrations of going back some number of years have talked about over classification of information and there of the various proposals on the hill or the executive branch to address that. and as i referred to earlier the fourth circuit in the case talks about how the multitude of leaks that occur daily and i take it that they were referring to what you described as the, you know,
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authorized leak many of those wouldn't meet the statutory elements to be prosecuted under the espionage act. there are leaks of classified information that occur i suppose whether authorized or not authorized that a prosecutor or the fbi could conclude that this does not constitute a subset of the most important of the nation's secrets and therefore there might be through the cia or the general counsel or the inspector general's and the intelligence community might bring administrative action through the information but a lot of those cases would never rise to the criminal investigation let alone a criminal prosecution, so that
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said there's been a recent instances where there has been -- there's been stories that appeared in the papers to talk about the government programs and investigations have been ordered without commenting who the source of the league was and that is the purpose of the investigation is to figure out was there a leak and who leaked it so these are investigations that take time and some of the cases that we have in the eva are cases where the alleged leak occurred some years ago and they take time and there's a reason they take time.
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kent delude it to those. >> i think that brings up an interesting point. there are ways of looking at that issue being there is classified information are classified program and then there is public discussion about that classified program at a high level in the government. and that is as it should be. the government has the authority to classify something that the government also has the authority to declassify something and this is made that it's important for the government to -- the people to have some insight into this program and i'm assuming that that calculation was made so therefore we are going to disclose something about it. i remember that going on before we put forward legislation for the government to get authorization to do the national security wiretap.
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once we engage in that legislative process, hearings, questions for the record, some information was going to get this closed that was probably going to hurt us but we made the decision that we needed to do that so we went into hearings and disclosed a lot of the program that haven't been disclosed before the was a calculation on the high level of the government and that is just the way that it ought to operate. the question though, the hard question is what happens when somebody in the upper levels of government say i'm going to release something classified because it is going to help our position in the press or it's going to help us or miss me to get something out there. well maybe that person is authorized to do that but when you do it for that reason, and what message they are going to be prosecuted from leaking something because the whistle-blowers that is a double
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standard and a serious concern because dillinger insure that the government and the people of confidence that there is integrity come the application of law and the ability of folks and a lower level of people will get prosecuted for doing the same thing that undermines the and credibility of the enforcement program. >> i have no idea and i don't want people to take a position on the double standard or not but certainly a lot of people think that there is and is their anything that can be done bureaucratically within the department of justice to try to minimize the perception of that the increased legitimacy of the prosecution's that do take
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place. in one area where there is arguably a lot of violations wrongdoing the department of justice put out of guidelines and the investigation and prosecution. are there other steps like that that could be taken to address the concerns about the double standard problem? >> i don't think motive or authorization disputed by whether something is really classified or not will have an effect in defense of one of these cases. once the decision is made to prosecute the court has the
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statute, the fact and the court doesn't say you intended well or that wasn't important possible information that won't come into a court case. >> to comments. i think as was said, the number of prosecutions that had been undertaken in the last several years i think there's been five prosecutions, five charges involving the different cases involving allegations of classified information during
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the same time period there were probably five cases brought by the justice department, and so half a dozen cases are the 300,000 charges is done sparingly and there are lots of reasons this is true and in the area of criminal office particularly in the national security cases in a case that otherwise would appear meritorious to the investigators ultimately may not be brought in at the end of the day the justice department essentially relies on the referrals from the intelligence community or the agency that is the equity holder in the council with the cia saying this is a case that is
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very significant and we would like them to open an investigation. we take our lead from the intelligence agencies which are making those referrals. the procedures act which both judge robinson referred to was designed to deal with the gray issue of having to die now a whole lot more secrets to approve the one secret that was leaked. but as somebody once remarked, sepa is like the government to play a chess match before the opponent has even showed up to sit down across the table from them in other words, you need to kind of thing through and make your best guess as to how a judge robertson is going to make
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rulings with respect to what classified information comes in and comes out so the prosecutors give our best assessment to the cia or whoever the equity holder is of the secret and then a decision is made and if the case goes forward and is charged a judge may end up making rulings and asked judge alice did in the apec case which certainly changed significantly the playing field in the intelligence community and the justice department had. compared to how we thought it might unfold at the start of the case. it's a long way of saying all of that sort of takes place out of the public view in the case may never get off the ground war may end up being dismissed for
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reasons which the government is not at liberty to share with the public and the media and congress recognized that when there's a provision when the justice department has to dismiss the case because of an adverse secret ruling for the appropriate intelligence community on the hill. but it's not something we can come to a conference like this and talk about. so, that's something that i always encourage folks to keep in mind as they think about these cases, and i know it has a certain, you know, you just need to trust us sound to it but that is literally the case and how they designed the statute >> i was hoping we could talk a little bit about changing media environment.
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you mentioned that we haven't had a prosecution of reporter or media organization. but i'm wondering if you're faults are any challenges posed by the landscape, the emergency of the new organizations and technologies that might be as responsible and willing to listen to government requests. are we looking at the new era because of the kind of fragmentation of the media environment and what kind of challenges might there be for the classification regime and prosecutors going forward? >> you mean is aera journalist? >> it complicates the issue let's put it that way. it's not of "the new york times"
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>> neil? >> they're worried about the article on the front page of the post that has was that information you were thinking about now. all of new types of journalists or media operate under the constraints of the traditional media do. i give a lot of credit to the "washington post" and the others when the of clauson for the information they think they have that information to the government and say look, you make the case for why we shouldn't disclose this and there is a give-and-take and that often results in the delay of the publication of the classified information or the media out what agree not to publish it and, you know, i
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yielded to a situation where i think they made the wrong call which is to publish an article of the program that is a very well-run programs there is no abuse or anything involved in it. this is the treasury program focused on the finances. the times decided to publish that in 2006 and i think people now realize the was a mistake because it was a smoking gun and all they accomplished was undermining the important program. but for every bad decision like that there's been some really good ones. so your traditional media outlets. your bloggers are not going to do that and the best example of a sort of new media and the new types of media that are allowed out there by the technology we have now is wikileaks come and wikileaks is the challenge and this is the full one from the
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judge's comment about is a blog or a journalist this is the question we refer to journalists and give certain protections under the first amendment how far does that extend? does it extend to everybody them gauges in the keystroke will is their something that you can define that is deserving the protection of the first amendment that is not? people say that is a dangerous game you cannot draw the lines of new media. an argument in the wikileaks points that argument out and one of the things i testified about in the past is can you actually distinguish wikileaks from the rest of the mainstream media as a constitutional matter and the policy after of the prosecutor wikileaks in the espionage act would they say okay they are being prosecuted the first prosecution of the key of the
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media ever brought but we don't have to worry that they are going to come out. the government is now going after the media because wikileaks is very much distinguishable from us and the areas of distinction are the grey lady is about all of the newsprint, whenever, and publishing stories that have public-interest that educate the public and by contrast its secrets the press does investigative journalism that's how they get information. wikileaks sets of these internet lockboxes designed to collect classified information in a way that can skirt the law against the disclosure so you've got these distinctions between the methods and the missions of wikileaks such that if they decide to bring a case in wikileaks, i have some confidence that the rest of the press is not going to be chilled but it's tough to draw and it's
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getting tougher and tougher with other news being disseminated by the sort of alternative routes. we will take questions from the audience in a few minutes. picking up again on the judge's comment about the classification of misclassification but also on the discussion on the hard issues that are posed by the illegitimate whistle-blower motivated to disclose some kind of wrong doing. one asks about which a lot in the cases and some of the case is about the discovery in the civil lawsuits but the idea is perhaps if the government conduct is arguably unlawful in some respects than there should
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be more of a presumption in favor of disclosure. the equities in favor of keeping it secret might be diminished in some way. i wonder if you think that's right in different areas in the discovery the criminal context whether it's appropriate to take that kind of view into account or not. ..
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>> you know, as ken said, you know, there are numerous stretches in place for whistleblowers to report information and that is true either in the justice department or a former inspector general is here. and they have structures in place to receive those kind of allegations of waste and fraud and abuse. illegal activity and what have you. it seems that that is the proper recourse if a government employee believe that. i just don't think that they would get a referral from an
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agency in a case like this. >> let's take will take a couple of questions from the audience. with be short and to the point. we always have a preference for questions rather than statements and speeches as well. anybody? two [inaudible question] >> please wait for the microphone to come before you ask the question. >> okay. >> could you go into a little bit more detail about the process you're just describing. the whistleblower process and how that is different from the one congress is working on and how someone goes about reporting abuse and that sort of thing.
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thank you matt. >> i missed the last part of that. so the question is how does the whistleblower process work? >> reporting lies? okay.. okay, congress is looking at some additional statutes, which i'm not familiar with. over the last 20 or 30 years, congress has passed several landmark statutes creating well-defined processes and protections for whistleblowers across the government. including individuals that work for defense department or intelligence communities. specific statutes that deal with and are meant to address issues that have been classified,
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correct or otherwise, and the information itself cheered by the whistleblower is classified. congress has created these avenues without a fear of prosecution or investigation or exemption from the agency to report that information directly to the hill. or to their own inspector general. i will put your hand to their agency. i am not an expert on those things. others may have experience with how it works. there are thousands of whistleblowers who make reports across the landscape of the federal government.
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they think that the process is a robust one that seems to work well from their perspective. >> the point i was making earlier is that you have a statute and that in that as well and good. but several things, one is user-friendly. it is the kind of thing that if i am an employee, it is easy to blow the whistle. it's not something that i have to worry about. having confidence that if i do raise a concern up through those channels that will be addressed. so it doesn't just sit there and language for six months before someone takes a look at it.
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other questions? >> right here. the woman in the second row. >> okay. >> hello, i'm curious about what you think about what kind of restrictions should be in place for throwing information over the walls? >> she asked about information and government bodies. i think you are getting to an important point. which is there have been historically limits on the kinds of information within the
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government among agencies within the government or the wall in my world is the sort of policy and rules that were in place that prevented law enforcement folks, the fbi, from sharing information with the intelligence folks from the cia and intelligence operators. within the fbi. they prevented those two bodies of personnel from sharing information about common target second international terrorists. that was the wall. the wall is taken down by the patriot act. as a result, we now have sharing about the national sheriffs across the government. which is great operationally. i could talk about things and share with our colleagues in a way that we were not able to do. before 9/11 and the internet.
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with the problem is, of course, is the more people that have access to information, it is to give a real-life scenario. and you're talking about terrorism in the united states -- you need to have integration and sharing from the cia and the overseas collectors are getting information about the pakistan end of that network to the fbi headquarters that are getting that information and sharing it with the fbi folks in the field, wherever that show is. and those people need to know the information. the problem is that that raises the possibility that that information runs a compromise. he was able to get access to an amazing amount of information. so that is an operational concern. decisions are made, better to
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have more information spread farther and wider than worry about the ways you get that information. >> i believe you were serving as the wall was coming down. you have any comments on this? >> i believe you were serving? >> the amendment and in the patriot act changed the game pretty dramatically. basically the patriot act made something like part of plants out of the judges and intelligence's purpose of a certified part of the national
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intelligence that they have for us. it is foreign intelligence purpose, and that is the end of it. the judge may not look behind that. the review decision that can refer to obliterated the so-called wall. by the way, you may have all read recently about the so-called fusion centers and what a waste they are of money and time and how they are not being very effective at all. it is another example of the mess we have gotten ourselves into. we cannot agree that the fbi and the cia and local police can share information without doing
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it through a fusion center which cost $90 and builds another whole level of bureaucracy into our system. i don't know if that is responsive. and please join me in thanking our distinguished panel. [applause] >> a look at the changing geopolitical map of the middle east. roxane farmanfarmaian nml examines current events from the civil war. the formation of new alliances in what she calls the air cold war. she spoke at a forum of the world affairs council in dallas, ft. worth. this 50 minute event begins with an introduction by the council's chairman, patricia patterson.
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>> welcome to this year we be lecture. with the help of many view in this room, people who can speak on strategic international issues, we certainly have been astounding panel today. it is part of the political and international relations department. our panelist is affiliated at the brookings institutes and the university of utah, which is at the getty center in utah, which interestingly is the oldest middle east center in the country. she is also [inaudible]
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he spent last summer working on that and is very excited about projects between cambridge and al jazeera. she is a specialist on strategic affairs. especially the european union and the united states. she is the author of blood and honor and the islamic revolution and particularly, roxanne is not only qualified to speak to us today because of education and experience, but also because she is a member of the roxane farmanfarmaian family. the family of persia.
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he continued the family until the shots came in. her mother is american. her father is persian. and she grew up and lived there until the revolution and afterwards. she was there in 1979 and chose to stay and report on the revolution. she published a weekly magazine at that time called the iran in. she is a speaker and media commentator appearing on npr, the bbc, and outstanding shows in the uk. she is here as the keynote speaker on the committee on foreign relations. she finished her master's and phd from princeton. roxane farmanfarmaian and i have been dear friends for 18 years and i can tell you that since her brother married my daughter, investment grade.
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roxane farmanfarmaian, welcome. [applause] [laughter] >> thank you so much, patricia patterson for that wonderful introduction and for the council for making this trip so special. i wanted to make sure that all of them have a look at the map. it is a pop-up site map so that everything i talk about today becomes manageable and understandable. two years ago, when we had had this conversation about the middle east, it would have been an interesting conversation. the arab spring came in with
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huge changes to our world. and we needed to keep our eye on the ball because if we take it off now, we will go through some changes within this amount of time. now, american policy and president obama is talking about foreign policy in asia. it is not because of [inaudible] , not because of civilization, but there is a more recent incident where libya [inaudible] it is because of an emerging
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global war that is being triggered by middle east. now, let me give you a little bit of context. you know, context is sort of like underwear. you don't need a lot of it, but you have to have it first. [laughter] in the past, we thought of the great powers is being the main powers. russia and the u.s. in the past. china, maybe india, and then there was another side, the navy powers or today, the united states. then, there was an american that they called donald fuller. if you put these two ideas together and where the two great
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powers, the land power in the seapower come together, we call it the [inaudible] the middle east is located in one of the worlds great ones. small states have the ability to shift the power from one large side to the other. simply because it depends on which side they are on or which side they decide to ship two. in the middle east, the old part of that shadowbox wisteria, and is today. but after the fall of the soviet union, after the end of the cold
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war. there was another fight. since the entire movement took place at that time when a secretary of state joined the middle east and today we have a second heart inside the middle east, and that is iran. those two hearts, with their particular allies are probably the growing second global cold war. now, the first indication that we have is the reincarnation of the second arab cold war. this, we know, we have heard about it being the conflict and proxy war between iran and saudi arabia.
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the sunni monarchies led by saudi arabia, jan, today, we have a slightly different idea. and the party that is being called the moderates. it is the opposite side leading to the islamic extremists. that force is centered very much on the area between them. and then we have the arab spring
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this is a very different kind of concept. it has to do with instability. it is something that has to be done the process and where these two forces overlap, the second arab cold war, it is syria. , now, we need to ask ourselves, are those the only forces that are beginning to shift that map or are there others? i would argue, of course, there are others. i would suggest that we are seeing an entire new set of relationships by the middle east. it is turning like a
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kaleidoscope. the same purpose, different design, and we never know when there is going to be another twist. are there new relationships that are being set up that are possibly indicating that the middle east itself is taking care of some of its own problems? orders the radical paradigm silvis? i would say that a very good way of looking at the middle east is in the form of five emerging class. now, we know about the first one. we all know about that one and that is having to do with iran. the key development has been the role that iraq is playing in that person. it now links iran, iraq, syria,
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and lebanon. syria and iran from iran's perspective, they couldn't even imagine really looking at it as a common religion. they are quite far along.
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syria and iran share americanism and the anti-israeli attitude. they share a common front. the shia crescent is there. and the growing [inaudible] the crescent goes from libya through egypt through georgia and the western part of iran and saudi arabia and the coast. moving across saudi arabia.
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increasingly the joint of sectarian war. the optimism in syria is increasingly being joined by these extremists. it is one of the reasons for supporting bad, saudi arabia is providing small arms. and we have to ask ourselves, what kind of extremism is coming out of that? >> we also have a situation of that which is maintained by russia. again, that group -- it goes back again. all relationships between russia and syria. they are both against the security council and it has to
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do with a great power in war over there. there is the issue of what issue is that that they are actually supporting? i have a syrian contact that i talked to a couple of days and he said syria? we think of ourselves as [inaudible] , but we do not know what the words herein means. so it is a tough idea when it comes to syria. it is not very welcoming. the fight remains local and regional. again, as we see this years and the sunni crescents collide,
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they are colliding in syria. they are part of a growing arab cold war and the arab spring. [inaudible] >> in the wake of the arab spring, [inaudible] for many domestic reasons, it is time to keep those problems out of the theater of [inaudible] at the moment. and pressurization of the nuclear issue in enron. finally, it's crescent goes from israeli. in the wake of the recession.
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and it is based on [inaudible] the people are so much closer to them than anyone around. now, i would say this is egypt [inaudible] in many ways is quite attractive and it is politically
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experienced in the condition of having been where it actually knows that opposition is no longer in the opposition. will they adopt an extremist agenda now that they are in power? as hosni mubarak one must? >> is keeping the arrangement with israel. he is very statesmanlike. he has invited saudi arabia and iran to negotiate together over
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syria. those four players, it is nearing now. what is interesting is how this event was like. but it is now egypt. beginning to allow the leadership, which is very much supportive by the radiance. turkey has perhaps been the greatest mover of this set of the last two years. zero problems with neighbors? no longer. because it is having the problems bordering with syria. the perfect model in spring,
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difficulties maintaining itself under pressure. increasingly having trouble with having trouble on the border. the greater crescents of us out. this is a real word of the whole region. this is where 500 people a month [inaudible] it is not getting very much involved with serious border war. what has happened is that when syria has become independent, they have turned to the iraqi
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kurds who have domination in the north of iraq in the government. they are providing arms, money, encouragement. this is inspiring new activity by those along the turkish people. [inaudible] this is how you find the significant impact. but first, a major breakdown between the north of iraq and we see that they are adding significantly to the growing sectarian war in iraq.
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the bombing of turkey on that border. this is causing a breakdown between turkish and iraqi relationships. seriously causing that supports structured combo. this al qaeda activity is on the rise in iraq. so they are all turning and intercepting, most interceptions take place on syria, several of them on iran, and they are hitting the great powers against each other who are their allies. what we are in seeing is increasing international standouts.
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and the nuclear standoff with iran. we have seen the resignation of kofi annan on after this. the statement now was made by a previous representative of iraq, his job is not just to keep the forces in syria coming together unconsciously to reach an agreement, to draw from common ground and learn the great parts of the security council. let's look at the situation.
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it may very well take place before the end of the year. if it does, it will help the united states be very vulnerable. we still have to invest. the taliban and the iranians are not friends. but they are neighbors. i would argue that if there is an attack on iran prior to our withdrawal, it is going to be it 's a bloody affair. we have began to move war from
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damascus through baghdad and back down again. very likely it would extend coverage of war all the way over to lebanon. surely there would be instability. yes, it would cause enormous spikes in oil prices. but finally give it a public justification. the potential between the great powers in the security council turned out to be significant. what we see between iran in the united states, iran is still
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importing problems. so yes, they are blocking in it for currency to back it up. india has hopped into the market. china is paying quite a bit of gold for oil. there have been sanctions for decades. it has some clue as to how to get around sanctions. little by little, they are
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shutting down cooperation council to the east of iran, those who have already tried to find some agreement tween the west and crescent in the west. it is one thing before the invasion of iraq. the support of those sanctions began to step back on those sanctions. these are among the great powers of the world. therefore, this region is just one large crisis.
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but we have a turning kaleidoscope surrounded by war. we have been arab spring and the cold war. is it all bad news? [laughter] >> i don't want to talk about that sad story. i would rather talk about the hotel miracle that says it will all turn out right at the end. and if it is not all right, it's not the end red. [laughter] >> we keep our distance and make sure that other great powers keep their distance, too. if we don't, as the world's
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superpower, try to ensure that there is not an escalation of conflict in the region, this will allow the middle east to pop open some of their own problems on their own turf in their own time. now, i'm not saying that they they're not going to miss a beat. i'm not saying that things are not messy. however, the arab spring has shown that exceptionalism is not a valid concept. arab muslims can one citizen rights and democracy, and on top of that, there has been a constant trend in the region were democratic practice. and we have seen it nonstop over decades. we may not have noticed it, but that does not mean it did not come before. what it does say is that this
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has been an ongoing process. the algerians rose up and established a somewhat freer press and a somewhat freer process of election. in lebanon, we know that it has had a revolution and they got rid of serious power. in iran, we have the green movement that went into 2009. in egypt there was a movement and the [inaudible name] movement. and those were wiped led to the success of the movement. in tunisia we had a movement uprising and that eventually led
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to good things. there is a need for democratization in the middle east. we see that consistently they have tried to address the problem on their own. and we will continue to do so. the way to redraw the map that is something that has a greater hope in it, is to not expect that it will take place tomorrow. but if women can exercise leadership to avoid a second global cold war on the international scale, we might see another surprise as great as the arab spring. a local redrawing of the map that may indeed turn out right in the end.
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[cheers] [applause] two thank you. [applause] >> let's go ahead and give students the first chance to ask questions. in no-fly zones not in syria, as they did in libya come how does that work? >> i'm so glad you asked that question. libya is nothing like syria. first of all, syria has an army five times the size of other armies. second of all, libya sits right smack in the middle of the mediterranean which still, in many ways part of this. it is not needing to fly into international forces. in no-fly zone would mean having
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to exert the power to ensure that the no-fly zone holds. that begins to bring in significant help from outside. recently, there has been increasing help. they have called upon their allies to back it up. still, it is just not a welcoming set up for any european or american power to go when. one of the reasons is that there is a very major possibility that china and russia, particularly only russia will experience a setback this time around. >> let's take some questions from the audience. we have a question back there and one here. we will work around the room.
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>> thank you. my question is on the movement. do you see them as gaining more power in the region? >> the question is will they gain more power. the short answer is yes and yes. but there is a longer answer. and that is the movement of until recently, there is no political agenda. this is something that has come out 2003 and the war in iraq. they were a very quiet movement. their view is now being expressed as an alternative to the muslim brotherhood. and so it is going through significant changes itself. it is fracturing rapidly. we are seeing enormous number of philosophy movement, but they
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have very little common ground, except for the fact that they are quite rigid in their interpretation and the practice of society and the exercise of sharia law. if we find that even when they weigh a larger section of this in egypt, it is not because they are politically able to translate a great deal about. it is by a coalition force. they are learning the difficulty of what it means to be elected into politics. everything that seems so black and white turns out to be affected by a brother, having a different group over here and making a compromise with the moderate muslim brotherhood leadership. suddenly, it turns out to be very interesting if you are in government. what we are seeing is that the
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other very extremist groups that are putting up with al qaeda and beginning to get of him, a southern rim of lower algeria, a lot of these regions, very sadly, it is still heavily supported by syrian money. it does overlap with a great deal of saudi views in terms of interpretations with the wahhabi practices, and a great number of the groups have offices or have inciting lessons to learn. >> mitt romney suggested yesterday that he wanted to on the red list in syria to help fight in the government. how would congress responded as? and how would the american public response?
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>> my view is -- i can't speak for the american congress. i do know that the opposition forces, the syrian army and the national congress, has gone a very good lace in the media out here. so there is a sense. and we support the underdog. who would not support a force against bashir machen said, come on. but one of the problems is, and it goes back to the first question, this is not an opposition. it is fractured, it is in some ways quite violent. syria itself has no government
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such as egypt and tunisia. the difficulty is we don't know what level and at what rate they are being joined up with the extremist that i have mentioned. we finally have no idea what the deals are better being drawn across these regions through the extremist groups that are in iraq and the result is we have one of the great questions we need to ask before we start sending in everything. one of the problems about more recent years is the middle east is a washed in arms. they are being treated like mad and being used against us. it is very easy. i can certainly understand where
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the frustration of candidate romney would come from. there is no question that we would feel that. but there is no real guarantee that it would accomplish these goals it set out to achieve. >> are there alternatives to sanctions, and should they fail [inaudible] , and when when she pay attention to when they fail? >> those are good questions. it is very difficult, i have to say. it depends on the goal. if the goal is to create regime change, one has to realize it is somehow the ultimate step in the purposes of the sanctions. then the sanctions and war are the only way to go about that.
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if the purpose is to stop nuclear development and development towards a weapon, i would say that we can't have quite as easy of an answer. what we agreed and when every member has agreed upon is the nonproliferation treatment. basically, the treaty says you can develop nuclear powers for peaceful purposes. the problem is that any nuclear power that is developed automatically has the possibility of use. iran is a great target. it has not been a friend of the united states for over three and half decades. it does many things we can justify for sanctioning it in for going to war even for those that are not nuclear. is if it is really -- we need to
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realize that we have a treaty that does not fit our interests and strategic values. >> [inaudible question] >> i would like to know what might be in the minds of the israeli leadership for the following three scenarios. one, an israeli attack shortly after the reelection of the current president. number two is then israeli attack in iran during the lame-duck session after the election of a new president, or three, no attack. >> okay. it is interesting to be an audience that asks difficult
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questions. after the current president is elected, it certainly would fit in the larger picture as to why either candidate was elected. that is that israel has a fear of existential threat in terms of iran. and it feels very much as though the control that it had in helping to determine the strategic architecture of the region with its friendship in the united states is slipping away as the arab spring and the cold war presence takes place. and so it is very concerning about that. and it is also concerning the iran does not develop a bomb. under the united states and elsewhere, which happened in the
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case of pakistan. we assured that we were not going to let them develop the bomb. one day, they did, and that was the end of that picture. the israelis do not want that to happen. again, one of the reasons is, and this is the existential part of their argument, i don't think that i would agree it really iran is going to send a bomb over to israel if it happens to develop one. what the threat lies upon is israel is the only middle east power at the moment to have a bomb. iran gets it, israel could no longer be able to dominate militarily and it has more or less been able to eventually dominate simply because it does
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have that final nuclear capability. what was the third one? is no attack settle? well, we get into a waiting game. because the united states is very committed to transcend not getting a nuclear weapon. at this point, it would be an embarrassing thing that they did. it is not in our interest to allow that to happen. it would be more an issue of the united states and israel working on common ground to see how the situation develops. my view is that we are not going to feel a lot of changes your iran has proven itself brazilian one point to me is all these tensions. they have helped protect an incredibly big economy. it has been the equivalent of
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putting duties and tariffs on a manufacturing base until they get big enough to compete on the international market, such as the asian states did. when they took those off, we had the asian miracle. in many ways, we are seeing the same kind of economy working inside iran. it is actually a very vibrant economy. it has just lacked a lot of financial mechanisms and a lot of raw imports at this point. but it is actually quite a robust thing. until the major sanctions came down, they were the second largest importer of cars above what made. second largest producer of steel. and it afforded more steel than anyone else in the region. now, it is not helping many
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cars, and it is a feeling that sanctions, that there are no questions. this is a big and very active economy. so it will sustain its people. as i pointed out, it will still produce a lot of oil dollars daily. >> you have the last question. >> thank you, roxane farmanfarmaian, for an interesting presentation. i am interested in the roles that china has played with syria. i would like to know your opinion on what, if anything, the united states can do to china -- is the best outcome that we stay out of it and let the region take your problems -- how will they deal what comes
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after us? >> well, in many ways, welcomed the question was what can the united states do. and what is the reasoning behind russia and china's approach to be doing these resolutions at the security council level. i think that in many ways, this captures the issues that we see that the region is preventing to last. for us, in many ways, it is a place that is very much our own thanks to the fact that we have our own men and women in iraq, and they are still in afghanistan. but in the end, it is far-reaching and abroad. it is roughly too close for comfort to have united states working inside the region
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without russia's input. we were there at the time of great russian weakness. so that exercise, especially in a place like this, as i mentioned, over this long. matt -- relationships mean that there are hundreds of thousands of russians living inside syria. so my view is that we need to identify and bolster those that we know our allies. ..
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you can find all of this in the video library. the u.s. senate to gaveling in for a brief pro forma session the presiding officer: the senate will come to order. the clerk will read a communication to the senate. the clerk: washington, d.c, october 30, 2012. to the senate: under the provisions of rule 1, paragraph 3, of the standing rules of the senate, i hereby appoint the honorable mark begich, a senator from the state of alaska, to perform the duties of the chair. signed: daniel k. inouye, president pro tempore. the presiding officer: under the previous order, the senate stands adjourned until
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11:00 a.m. on friday, november 11:00 a.m. on friday, november as a catholic, how has your view on abortion then shaved your religion? >> i'm a catholic, so i guess i can't answer that question.
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my husband is a catholic. my children have been catholic church but i would be happy to talk about my view on abortion. my view on abortion is that it should be safe, legal and rare. >> here is a difference between us that is not manufactured added that is this, we have babies and america and in iowa that are being aborted simply because their baby girls. the mother wanted away instead of a girl. we have legislation before congress that prevents the selective abortion. mrs. vilsack says it's ridiculous to talk about it and it matters to the little girl's being aborted
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i like watching the gavel-to-gavel coverage. it's really the only place to get the real deal and i also enjoy newsmakers and the programs. i like that the commentary is only intended to what you know is going on and there isn't much analysis. there isn't an opinion, and i appreciate how i can see through and understand the programming itself, and i can get my'''' analysis elsewhere. if you want to see how the government works directly, then c-span is about the only place to go.
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a panel of state attorneys general recently talked about how their offices are involved with issues like implementing the health care law, privacy online and environmental regulations. this discussion as part of the u.s. chamber of commerce annual legal issues summit in washington. you will hear from the attorneys general of maryland, oklahoma and alabama. this is just over an hour. >> okay. if we could ask people to please take their seats.
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we want to thank the panel with a great discussion and food for thought, and i sure we will be hearing a lot from the fund industry over the course of the next several days. i would like to now move to the third panel of the day. today's summit as you know is about legal trends and one of the biggest has been the involvement of the state attorneys general in legal and regulatory matters important the business comanche from health care to financial services from energy to high-tech they play very prominent role not only in enforcement, but in federal, state, legal and regulatory matters. so, to discuss this issue will have three state leading attorney general's with us today, dug-in slur of maryland, scott prudhoe, and luther strange of alabama.
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the moderator of the panel is ferber banker who served as attorney general of georgia for 14 years under three different governors. while in office he focused on consumer protection issues and helped push through the mortgage fraud statute, the first of its kind nationally. he is and was a leader in the community. he served as president of the national association from 2006 to 2007 and he's currently a partner in the atlanta office. islamic good morning and thank you so much for that introduction and also for the leadership that you and you're outstanding team are providing around the country, and in particular issues that involve the business community. you have been a positive effect for all of us, so we appreciate your work. ladies and gentlemen, good morning and welcome to the
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conversation with state attorneys general. it is not every day i believe that we get a chance to have an open dialogue with not just one, not two but three state attorneys general. you are in for a treat this morning and i hope we will have your attention. let me put this in the proper context if i can. and america's not too distant past. the state attorney general was seen as an officeholder that didn't garner quite frankly much state or national attention. that attention was reserved for the governors and members of congress. quite frankly, and i'm sure that he would agree with me, most people felt that the generals were taught of the military. they just couldn't figure out which branch we belong to. if i had a dolph for every time somebody asked me that question
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i would draw the donald trump in terms of my wealth, but things have changed. since the state attorneys general to under 46 billion-dollar settlement with big tobacco in 1998, the nation and in particular the business community i believe has come to recognize the power of state attorneys general way and we see that power being exercised each and every day individually by the state attorneys general and collectively for the multistate actions. some entities out there have even in the fog about how they create nationwide policies through this of the state attorney general practice by passing converse essentially. issues that previously were of a province of congress are now being discussed each and every day by the state attorneys general in the respective offices.
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america has changed. well, today we have an opportunity to vote here from and to talk with and dialogue with you three of i believe those prominent state ig is in the country. they are well respected by their colleagues, and as we like to say, they are leaders within the association. joining us today, we have to my far right, attorney general of gansler from the state of maryland. next to him, we have general scott pruitt, glad to have you here, from oklahoma. next to him, my sister state ag, general luther strange from the great state of alabama. let's give them all a round of applause. [applause] and just so that you all don't have to hit your ipad really click to deal with these and figure out what they do, let me give you just little background on each one of them before we
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get started. general gansler is currently the 2012, 2013 president of the national association of attorneys general. he was first elected in 2006 and then we elected in 2010. i'm told without any opposition in either party and of the distinction of being the only statewide elected official not to have a position in either party in 2010 that is pretty impressive. but i wish i could have learned that. during his administration congenital gansler has focused on the environment, he's focused on consumer issues and public safety issues and he's chosen it the issue of privacy as his presidential a initiative. general pruitt was first elected in 2010. don't be misled by his
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relatives, we send entry into this world of the attorneys general's because he has quickly become about a limited government and the proper balance between the federal and state governments around this country. he will talk a little bit about that and in particular he focused on the domestic energy security and production. they are also elected in 2010 as alabama's 49 the attorney general and even before he became the attorney general, he was recognized as one of america's leading attorneys in particular focusing on economic issues. he also serves as the coordinating council for the gulf state landmark bp we'll litigation. you may not be able to tell this sitting here that general strange is a little taller than
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the rest in the world. that's because he was a scholarship basketball player and we are glad to have each one of you here. also should mention she's our midwest regional share in the national law association of attorneys general which gives them a position on the powerful executive committee of the association. let me tell you how we are going to proceed. we are going to start with general gansler this morning and i am going to ask each one to have a conversation for about ten minutes and talk about the issues of concern. i believe they would also be issues that you are interested in. general gansler unfortunately has to leave for philadelphia a little bit later today. he's going to leave a little bit early but we are going to get you to start us off with about ten minutes of conversation.
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we may have a question or two for you before you leave and then we are going to move to the other generals and give them an opportunity to converse with you for about ten minutes each and then we will do some insight for q&a and i love you all will have some good questions for them. with that said, general gansler, the floor is yours. >> thank you congenital baker and i say that because i appreciate your service for the position i have now which is the national association of the attorneys general in served with distinction and it's a pleasure to be here with all of you particularly the balanced citizens we have the honor of representing both of you as a centrist democrat i enjoy that title. i guess the title of the program is the current state of affairs as the attorneys general so i guess what i will do is just touch on three issues that we are working on a nationally as
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an attorney general for the issues a mortgage foreclosure settlement probably the most time on right now which in my queue was a win-win for everybody. least certainly for the consumers and those that are on the brink of the foreclosure underwater or they are behind on their payments. there was a win for the banks because they
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will have a positive impact as well in the long term. the piece that i spent time on right now during that is going out and making sure that people avail themselves of the settlement so they understand who is eligible and that this is not a program that a legally enforce settlement in the federal district court in d.c. with a monitor that is watching and making sure that all gets done. in maryland about a third of the money already out and we are seeing the results and the
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effect of that. so it's been positive, of across-the-board at this point. the second thing that we are involved in as attorneys general in our states the advocacy that the council is regarding in the implementation of the affordable care act. so regardless of the congress and upheld by the supreme court. it is an interesting issue this morning there were about 150 people and i asked if anybody in the room had actually read other than the newspaper a of the affordable care that and one hand went about of 150 people everybody had a good thing or bad thing and not in that position as a good thing or bad thing. our job is to understand it's going to happen and it's going to kick in in 2014 and we as lawyers need to make sure the devil was in the details and a
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permissible way that we represent each of these as a state and we advocate for the particular areas. i for one am interested in covering the behavioral therapy statistical children so we are pushing to try to get that as an essential benefit but we all have different things that we want to see happen. we can continue -- when the election is over we will stop worrying whether it is a good thing or bad thing and go on the business of the implementation. the third thing is, and general baker mentioned this introduction the mine working on is the presidential initiative, so each president of the national was the vision of attorneys general has an initiative. last year in the state of washington was trafficking and we drove down on that issue and got that issue out on the national level in terms of being
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able to help work with law enforcement exposing issues through trafficking. mine initiatives as mentioned was privacy in the digital age, so we have had panels on the subject and we will continue the panels on the subject. we started with googled regarding the new privacy policies and we will use that as an example of the kind of things we are looking into. so i wrote the letter with 35 attorneys general bipartisan again, and this was google's decision to have a new privacy policy where they look at your personal e-mail account any time you touch an application they develop these profiles about you which they used to direct and focus advertising towards you. and you know, some people it's not that different looking at the e-mail account and the
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telephone and the question of course on the internet that a lot of these issues we are delving into is where does your privacy interest stop and they're legitimate business interest began and where should that line be drawn? we are not looking at this as if everything is going wrong, we are not looking at this as if there is an indictment to be handed out, but we as attorneys general have begun to fill the void as sort of the regulators if you will of the internet in some way, shape or form, and because the prosecutors are focused more on the local prosecutors and murder rate and street crimes, bethesda concerned with homeland security terrorist issues and getting more and more involved in the internet space, so the founder was from the state of maryland. they look -- you are able to find out when the building was
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built or played basketball at to blame but just tied in the search that information comes to you for free. so they provide this incredible service, but at the same time the question is how much do you want them to know about you, how much are they telling you? what are the privacy statements? do they know what they're doing with that information and who they are selling it and we are not picking on any company. you go on the internet and what is that company doing with the information or how they protect from hackers and identity fields and to live a selling it and for what purpose? and so, where does your privacy interest and? younger people don't care about privacy that much. they are on facebook and trotter and they want people to follow them. they want to be exposed. older people have a little bit more of a problem with privacy. we think about it in terms of flying on an airplane. the goal was not to have the
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airplane plot. in your pockets in front of you and collect your belongings on the other side. you get in will squeamish when they want to x-ray you and have these naked pictures going back to somebody in a different room, but now you do that. if tomorrow they said we are going to strip search you before you get on the plane in front of everybody you might take the train so there is a line that can be drawn coming and we want to make sure that there is both transparency in terms of the privacy policies and if you know about them and the ability to opt out. obviously europe is much further along on the path on this issue than we are. some other issues that we are touching on in terms of the privacy initiative or cyber bullying, the protection of intellectual property. you go on. right now you do research on rosetta stone. you want to learn french. the ads on the right side or
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chinese knockoffs. how are we protecting our companies from counterfeit drugs being sold, counterfeit drugs being sold in the mail to people in the united states which is obviously hurting our pharmaceutical industry. piracy of films and music are issues that we are looking into rows well. so there is tracking the companies are following along and you are walking with your personal device. in five years it's going to your wallet. you will open your car, start your car by hitting a different past password. you will pay your bills with these things. how was your financial information being protected from the hackers and identity jeeves? these are the issues we are going to delve into as we go through the year looking at the issue of privacy in the digital
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age and try to juxtaposed the issue of the legitimate business interests with the privacy interest of those consumers who use the internet. islamic general gansler, i remember mac in 1998 we had a summer meeting and spent the entire meeting talking about the privacy issue and as an extremely complex issue. i don't know that we can away with many solutions, but we all understood the complexity of the issue and really had a desire not to have unintended consequences on things that we didn't see. and we understood that many of the people that hold these jobs in the audience and the predecessors to bring to the table a lot of information was helpful. tell the audience how they may be able to input in this process
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because the presidential initiative is a big deal and it will in fact a lot of people in this room, and i am sure they would be curious how they can provide some leadership and support as the attorneys general's deal with this issue. >> google hadn't been invented yet, for example, so the issue is on going and where are we going to go in the future on the issue of privacy and technology as you know what goes literally and figuratively light years faster than all but follow so we are trying to stay on top of that as attorneys general. in terms of the corporate devotee to influence the panels and discussions of the corporate perspective we have in all of our panel's again corporate and cut. we thought we had panels with general counsels of some of the major companies and representatives because before
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they start regulating the internet is the companies that were regulating it themselves with the integrity of their web site if something goes look at the day. if people start buying stuff on ebay the product we are getting is not what they have paid for e de would quickly go into the hole so they have an interest in providing security. it's in terms of having their own security protecting integrity of their own sites have been the ones that have not been in trouble over time. this isn't a right or wrong issue we are trying to promote a dialogue and discussion as to where the privacy should be and where the business interest should be and talking about advertising, people that you may want more relevant adds when you do the math search to size and other state and all of a sudden you get to bed and breakfast ads and hotel ads in that particular
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location that may be helpful to you for more than something that would be irrelevant to you so it's not something that we would opt out of but we are trying to promote the dialogue so what happens is our conferences around the country that we have, we have panel discussions on a variety of the subjects and we would then have in mid april a conference just on this issue and the national now lacrosse from d.c. and we hope he will participate in that further from these topics. get in touch with those of you to participate or particular interest in privacy issues that we are discussing. >> general, state and with that topic, you know, informing the consumer is when there is a breach, when their information has been compromised it is obviously a big concern for most to deal with this issue and this matter is basically regulated at the state level and we hear a
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lot of discussion on whether or not there needs to be some type of federal legislation or standards created for how we notify consumers in the case of data compromise. speak to that issue a little bit and give your thoughts on whether one of the federal standards are needed or can we manage it at the state level? >> it transcends that issue we have as attorneys general republican, democrat, what ever you are, we always want to protect our states' rights and make sure that we have the ability to have enforcement authorities and to regulate and monitor different activities. right now we are doing a breach context each state has the devotee we wouldn't want to use that and compromise that no pun intended but we would welcome the federal legislation as long as it didn't preempt us because then you get the other side of the tension that is the
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corporate interest. companies constantly tell us and for good reason that they don't want to deal with 50 different standards the don't want to have 50 different laws they have to comply with and have to figure not the nuances of each. wouldn't it be nice to have a federal standard of the floor and the net the state wants to go further they can and if not, they don't have to and the state regulate authorities. it's always an issue and a tension. the two areas that we are relatively pre-empted out of our share of the areas that we hear the most about which our national banks and credit cards and those are two of the areas where we have very little jurisdiction. most other areas we do have jurisdiction and we work quite well with the federal government and agencies and we tend to be a little bit more aggressive in some states on some issues because just look at capitol hill. they can't agree what day it is
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so they have a better ability to enforce regulations and get things done. >> general gansler if you don't mind me see if there are questions from the audience because i know you have to run shortly. let me see if there are any questions that need to get asked. we are going to take them out of order if you don't mind. any questions in the audience. >> microphone, please. we want everyone in the room to hear them as well. >> i'm from chicago and - as it is the medical and legal adviser to lisa madigan. in your office you get experts to advise you on all the different aspects that you relate with. >> on all issues? >> on the major issues like this to you go to the public or -- where do you get your information if you are an expertise cracks >> well i'm not an expert on
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these issues on technology i can barely do e-mail. so we go and find a different people on this particular presidential initiative we learn from meeting with companies and experts in the field and national security cybersecurity is an area if people come in and talk about issues that we shouldn't be discussing and that we should have panels on and then we have the biggest responsibility is the attorney general to hire good people so the guy that i have running the day-to-day technologies issues dillinger and has undergraduate jail as a scholar so he gets all this stuff and takes notice on some kind of a computer and who does that? he does. so we learn a lot of the issues that we have to look at in that world. on other -- it was a general rule in terms of expertise, you know, in my office we have four
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of 67 lawyers so we hope to have expertise in those areas. we don't have expertise in some areas and then we hired the outside counsel for that. on one of the lawyers and i feel that these are of the same where we don't just higher outside counsels and we have a problem with a business or industry it goes to find out what's wrong. we've never done that. but some attorneys generals do get advised to the chamber of commerce. [applause] but in terms of expertise, we go out and find out but in our office we have an open door for people to come in. the guy to your right, when we have a problem he comes and talks about it and we work it out. we get much better results from having the company's talk about something we might not be aware of and then looking that out as opposed to giving out having a press conference, the company
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having a problem and then we are mired in the years of litigation and it is not resolved. it's much better in my view to say here's the problem. by the way we are going to win if we do go to litigation because we are the state and we wouldn't build a case unless we did so let's figure of the middle ground here and fix it and we almost always are able to do that. not always what almost always. >> i hate to cut the conversation right about now but we've got two of the standings we want to hear from right now and i know general gansler house to move on, some general gansler, stay with us as long as you can. we won't be offended if you leave in the middle of the discussion that the tree so much for being here. thank you. [applause] general pruitt, the floor is yours. tell us a little bit about what's going on in your world in some of the issues important to you and let's have a conversation with that.
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>> general baker, thank you. one good thing is it works on the' little bit so i am working faster, and i know that he said you probably can't tell he is afoot taller than me that he probably is. i am his point guard, she is my center. good morning to you. thank you for the invite. general baker had asked me to talk about issues of federal overreach, regulatory overreach, less than two weeks from now it will affect the future as it relates to the state's response, particularly in key areas like energy and finance and we want to talk about that in the second. what do you think is going to happen on november 6th, and with general baker didn't say is among the baseball team for approval of time, i am a big
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baseball fan and yogi berra is a great philosopher and once said predictions are pretty tough, particularly the future. and i think it's going to be interesting to see what happens on tuesday, november 6th but i will tell you it has a direct effect on what he does a day in and day out and what i do because when you think about regulatory overreach or federal overreach or the balance that should exist, cooperative federalism between the state and the government, we talk about federalism as an academic concept. it's real. federalism is the vertical checks and balances. we know the horizontal checks and balances that federalism is the local checks and balances and what congress does every day. congress passes a law for certain agency's responsibilities and reserve some of that and there's supposed to be cooperation. the first 20 or so months in office i lived in a personal and
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direct way actions by this administration and the federal government that has affected us dramatically in oklahoma. our stultz of energy. in the energy context there is something going on and you've probably heard about, i hope you've heard about because it is a strategy implemented by the epa and not just the epa but other agencies, and the congress, congressman in oklahoma city invited me to washington earlier this year. i came and testified with respect to the state response, but agencies like the epa, there was the case in california university epa where it involved the clean air act, very complex piece of litigation and responsibility in the states to adopt plans all over the country and implementing a plan to
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comply with visibility and requirements and a lawsuit was brought in california and the same was entered into but in that dissent decree the epa a bound itself to certain requirements and obligations that did not exist and do not exist under the clean water act affecting other states across the country and put in oklahoma. my friend is the attorney general in north dakota. before that is sent -- before that was actually filed and tried to invest in that process and was denied by both the justice and the epa. it's a concern that the attorney general's have across the country and recently 13 states tried to get a democrat and republican and sent a letter to the epa and information is being sought with respect to collaboration and coordination and communication etc. with respect to a whole laundry list of environmental groups and in certain cases the consent
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decrees judgment has been entered into. just over the last three years the epa has engaged in that strategy and as they enter into that decree and confessed judgment on the same they pay millions of dollars to the attorneys deborah litigation. that is a concern. now i will say to you we don't know the information is going to show. it is of interest to the states like oklahoma because we believe the fundamental concerns of due process has been for the epa administrator procedures act and so this information that we are trying to collect will go to the heart of making sure states like oklahoma, north dakota alabama and others can defend or be aware of situations are litigation that could affect us under the clean air act or other pieces of legislation. one of the areas that i will mention to you beyond energy is
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in the finance area. recently the state of oklahoma joined the state of south carolina and the state of michigan to challenge the authority under dodd-frank. as you know, there is a piece of litigation pending on the court challenging both title i, title to land title ten of dodd-frank because the action was brought by the states, the complaint was amended recently but the last couple of months. and very concerned with the liquidation authority granted to the treasury secretary under dodd-frank. the state of oklahoma has approximately $850 million or so in corporate indebtedness that they go and under dodd-frank, as you are aware, creditors when a serve entities liquidated by the treasury secretary under title to they didn't receive notice. state of indiana with the auto
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industry had lost millions of dollars in that process. i saw dodd-frank. as you know indiana tried to address that and was ultimately dismissed because of the standing issues but, this area under title to and the regulation and dodd-frank is a concern to the states because we have tensions, investments that have been made, and entities that could be liquidated and there are due process concerns we seek to address and that charles engender dodd-frank. and then the other area that i will mention to you, general gansler talk about the implementation of the affordable care act. there are issues pending with respect to implementation of the affordable care act. not the least of which is the rule that was adopted on may 18th of this year. under the affordable care at the states have two primary decisions to make.
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expand medicaid, and as you expand medicaid, in 2016 bears in a population that is recovering the states will pick up the cost for those individuals but from now until 2015 the feds are going to think 90% of the cost of medicaid expansion. that's one decision. the other area is whether to adopt a state medicare exchange. it's very specific if the state does not adopt a state health care exchange, two things occurred. the tax credit the individual employees may qualify for don't go to that state and consequential we neither does the employer penalty for failing to provide health insurance. the irs this regard that language this year and said they were going to enforce the penalty. in all states with the health care exchange had been adopted
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or not oklahoma up until now has not adopted the exchange. we have amended some of you in this room know this but when the -- when i was elected in january, sworn in in january 2011 oklahoma filed a separate action in addition to virginia and the proceeding in florida because we had a constitutional amendment that we adopted with respect to the affordable care act so they might after the supreme court decision came down in june of this year. after it came down we amended our complete and we have now added a claim dealing with this issue under the affordable care act and the alliance must rule on may 18th to preserve the policy, the decision that oklahoma has made to not adopt a health care exchange for the policy decisions and benefits to employers across the states. so there are issues remaining on the implementation for the health care exchanges and the taxes the irs seeks to assess.
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with that, general baker thank you for the opportunity, and we play at this time they do affect the role in the of finance and energy as well as health care and other areas everyday and we will continue to respect general pruitt, thank you. as you can see she is on the ball moving this national agenda and we appreciate your leadership. i've got some questions for you. the audience might as well but before we do that with a move to the next panelist and have general strange dhaka little bit with his gathering and talk about what you're doing with one of the major oil spills that we have seen in this country in recent history and we may have some thoughts on that as well that we would like to hear about
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i want to thank you the chamber for the work they do. it's wonderful to be associated in a part of this panel. to tell you a little bit of my background so that you will know where i'm coming from as attorney general. my background as a lawyer is in the private sector. i've represented corporations. i was an in-house counsel and i ran in august for the fortune 500 company in alabama many, many years ago. started a law firm that sort of made its name in the economic development and corporate work and it's one of the biggest southeastern major firms. so i have represented dozens and dozens of ceos and have worked closely with the best general counsel in the country.
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so i see that all to tell you the sort of mind set, the legal philosophy that i bring to the office of the attorney general because i couldn't agree more with scott and what he has said. there is a long litany of cases we are involved in that affect the economy. my goal when i came into the office is i have lawyers that come from the best private practice firms in the country that have supreme court clerkship experience who have actually worked in the real world so they understand the effect of the regulations and what a contract means. they understand the importance of the rule of law. they are the kind of lawyers than you would be comfortable hiring to associate with on a case involving big stakes. so that is the sort of mentality that we bring to the office for the finest place in the country to come and build a business. i believe that for the free market capitalism i believe in the rules of law and i think if you have a steep that promotes that you know what the rules are and you know it's fair.
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the state will thrive and we have in alabama. i represented hyundai there's lots of russian oil companies that are there now and are coming with airbus most recently with billions of dollars of investments. that tells me we are doing something right that people want to come there. and so, one of my first big cases they had already sued the british petroleum, bp for the environmental oil spill in the united states, 5 million barrels in the gulf of mexico. our state was entirely, the coast guard was covered with oil so we had economic and environmental damages. i don't have enough time to tell you the story. books will be written about it and the complexity of it. it's a multi district litigation case being handled under the rules in new orleans.
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there will be a trial on january january 14th working with the judge in my short period of time in office only a couple of months the coordinating council for the states. there are 17 lawyers down to two that are an important liaison counsel. there's eight major corporations with the best law firms representing them in five states and different stages of litigation and on litigation have different approaches to how they handle lawyers and approach that case. i inherited the case and my state already made a lawsuit against bp when i came into office. so, i immediately of ululated the case and the first thing i did and the first day in august the attorney general was to meet with the law firm that my predecessor had hired contingency fees 14% of any recovery in the state of alabama would get. no offense to a very good law
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firm, made the decision and was an easy decision we have in our office to take all that work in-house. and we've handled every bit of that work in house through our own good lawyers. we haven't spent any money on the outside counsel. we don't hesitate to do that although we have a very small fraction of the number of lawyers on the outside retainers than we did when i came in. but if you consider 14% of whatever it is windy in this case or whatever the verdict might be on the environmental and economic damages, that is a significant amount of savings for the tax payers and it's the right thing to do it certainly the right thing for the state of alabama, and i am proud of that. we have been looking at some of the cases mentioned in scott did a great job of summarizing some of the cases. i tell people everywhere i go, and i've witnessed this going back to the days when i was just the campaign chairman for the prior high wanted some get
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somebody in office that care about will fall and had a philosophy on integrity so i got to see a lot of the changes and a used to be a hell hole, all these different things to i didn't see that in the language summary, glad to see that they've made progress there in terms of the ranking. but what happens in the attorney general will have an impact on every business in the country, a very significant impact so we try to look at -- atoll to my philosophy at the state level. nationally we look at these cases and one case i was going to mention in particular was the case on the standard fire insurance that many of you may be familiar with. it had to do with the effort to defeat the federal removal of the class-action suits under the reform in the early 2000. we are leading that amicus
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effort to try to address that issue if. i have a draft on it on my chief counsel and i would be glad to talk about that case leader with you. if you have a question it's just a very important issue. space mentioned the epa and was a good example of the case where they tried to stop them from building a plant in south carolina and all of the conservative rule of law jumped into that. a mix of a difference in alabama we are a right to work state and they can't locate there. that's a problem for me and goes back to the rule of law and some of the regulatory process east. there's all kind of things coming out of the obamacare act. you will know where i'm coming from on what he's of legislation. there's all kind of things to come out of that. one example that has been intriguing to me that we are
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involved in with religious liberty there is a company broadcasting network instead of some of them called the internal work and work. if you're catholic you know about it. it's the largest broadcasting company and the old headquartered outside of birmingham alabama by mother angelica and they provide health insurance for all of the hundreds of employees right there in birmingham. they would be under this hhs mandate to provide certain contraceptive mandate services under their insurance, they would either have to pay a billion dollar fine, in which case the state of alabama has to pay for it. that is an issue that was even discussed in the vice presidential debate. it is a serious issue related to freedom. on behalf of wtn in that case i think it is in to be stepping forward until the presidential elections are over. that is just one example of many ramifications that go into the rule of law.
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and i guess we could go through a whole list of things. the congressional intent of the rule of law goes back to the bp case and if i don't know whether that case will settle or not, but there is a debate going on on where that money goes through congress changed the rules after the gulf oil spill to the clean water act which used to require exxon valdez in all of the money on the skills with the future spills into a big fund, so obviously when this catastrophic spill occurred it didn't make sense to put the fines are the penalties but there may never be. hopefully there will never be in this magnitude so the congress passed of restore act to say we are going to put a large percentage of these penalties into money that is when the effective to all states as opposed to the national
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resources which go to the restoration over time and the big controversy that you can watch a news will be whether or not the administration will try to bypass the restore act to put money into the environmental recovery. this is a bipartisan group of senators from across the gulf coast area who are concerned that the administration might bypass bowl they've recently passed and the president signed to avoid all they passed. that is the kind of thing that we are seeing more and more and that has a big impact on our state, but if it can happen there it can happen in a whole other range of areas. so, again, it is an interesting time to be an attorney general. it is a very interesting time to be an attorney general, and i would be in this position i appreciate. >> thank you congenital.
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hold your applause. we are going to do that in just a second that because we want to use every valuable second that we have to get their thoughts on a number of topics that they have raised, and they've raised a lot of topics here that will have a tremendous impact on the business community. let me go back to general preferment because you started off with this whole idea of federalism, and obviously it is of great concern to you. we have an election coming up in a few days, and i am curious as to whether or not what the impact you would see on this issue with say if president obama is free elected and how is that fair with the federalism concerns that you have had come and how can they play evelyn impacting this? >> one area i like to use in particular in oklahoma and it's affected states across the country as well but the issue is hydraulic fracturing.
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some folks in the country think that that is a recent phenomena. it's not. it's been regulated in oklahoma and utilized for 40 plus years states to that privacy and regulating that and set up some tremendous responsibility making sure that process is implemented and developed and produced but is done so in a safe way for a hour citizenry. in fact, congress has actually put in the language certain federal legislation that the epa doesn't have oversight or involvement in that area. but despite that, there is a -- there are steps of preparation being taken by federal agencies, and i think they are superimposed to read certain federal regulatory requirements over the state's. and we take seriously in oklahoma they should be guarded and we are preparing for
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potential action by the administration so that's one area that comes to mind. the original rule i mention that in my comments about the visibility and aesthetic requirements. the states have primary responsibility is to adopt the plans. they can actually engage in the cost-benefit analysis under the clean water act to say that we invest and get this benefit we think that the best way to improve the visibility and aesthetics and the state they are primary. in our state in march of 2011 after being sworn in, we suggest the epa came in and issued a letter to our state officials say we are going to disregard your plan and enforce a federal plan and the state of oklahoma that would have cost the utility companies in our state two to $2.5 billion over a three-year period driving the utility reads up 15 to 20% in three years. now, that is where federalism matters. when you see the utility rates for the consumers in your state,
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which is a primary function to be an advocate for the respective commissions as we regulate the end of the space when you allow them to come in and consistent with the provision of the clean water act to displace a plan that drives the rate up to that degree in the period it's our responsibility as an interregional to do something about that to take action which we did and the tenth circuit has agreed with our position on the issue tuesday to the enforcement of that federal plan while we litigate the case in oklahoma city. the point is, general baker, these areas of energy, the epa, there is an attitude that permeates the agency particularly right now that i think is less regulated and more punitive perhaps but it is a very acute issue for the energy
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space. >> i don't want the audience to miss the point that you made earlier about how they are not using outside counsel when he came in and had to deal with the major oil spill from the bp incident. outside counsel is a challenging question for most of us in this room and how they use that council tends to be a source of discussion quite often. so, tell us a little bit about what you're thought process was when you decided to go away from the outside counsel what you thought the down side might have been for the state continuing to use. where do you get your expertise, and it's very important my general philosophy is what is
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best for the state of alabama, and not to hire anyone unless i can stand up in front of the citizens of the state of alabama and say this is the wife hired, this is why i hired them, this is how much i'm going to pay them and this is why it is a good deal for the people in the state so applying those basic principles i've made the decision in this particular case that it wasn't worth the cost benefit analysis but because in that case it wasn't a one of lawsuit in this particular case the bp litigation there are literally thousands of individual plaintiffs and i dealt with mr. feinberg there were a lot of parties in that case that have a common interest with the state of alabama, and
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so the decision there was to form alliances where it made sense to work together like to do every day in your private practice if you find common plaintiffs it makes sense. that was the approach that we took. but i am totally open when the occasion as appropriate but it has to bring something to the table and that's where we go for our legal system and taxpayers. when you join a private plaintiff together with a department of justice or the attorney general, it changes so i think i take that very seriously when we go about that process and we have a lot of cleanup work to do when i came in to look at where we were it took me awhile to get that reorganized. ..

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